TIDMADM
Admiral Group plc Results for the Year Ended 31 December 2011
7 March 2012
Admiral Group plc ("Admiral" or "the Group") today announces a strong annual
result with a profit before tax of GBP299 million for the year to December 2011,
an increase of 13% over the previous year. Turnover, comprising total premiums
and other revenue, rose 38% to GBP2.19 billion. The Board is proposing a final
dividend for 2011 of 36.5 pence per share, to be paid on 1 June 2012.
2011 Preliminary Results Highlights
* Group profit before tax up 13% at GBP299 million (2010: GBP266 million)
* Record total dividend of 75.6p (2010: 68.1p)
* Return on capital of 59% (2010: 59%)
* Group turnover* up 38% at GBP2.19 billion (2010: GBP1.58 billion)
* Number of customers up 22% to 3.36 million (2010: 2.75 million)
* International car insurance turnover* up 57% to GBP122 million with customers
up 57% to 306,000
* Group full year reserve release GBP10.3 million
* Nearly 5,500 staff will receive free shares worth GBP3,000 in the Employee
Share Scheme based on the 2011 result
* Turnover is defined as total premiums written (including co-insurers' share)
and other revenue
Comment from Alastair Lyons, Group Chairman
"We are very pleased once again to be able to report a profit before tax up 13%
at GBP299 million and to propose an increase in total dividends for the year of
11% to 75.6 pence per ordinary share. This represents 92% of after-tax
earnings, testament to the strength of, and our confidence in, Admiral's
capital-efficient and cash generative business model."
Comment from Henry Engelhardt, Group Chief Executive Officer
"For the eighth consecutive year Admiral Group has reported record profits and
record turnover. We have now exceeded GBP2.1 billion turnover, within 19 years of
a standing start, which is a fantastic achievement. Profits are up 13%.
"We enter 2012 with confidence. We can continue to grow profitably and have a
business full of committed and motivated people who work hard every day to
ensure Admiral's continued success well into the future."
Dividend
The Directors have proposed a final dividend of 36.5 pence (17.4 pence normal
and 19.1 pence special) per share, to be paid on 1 June 2012. The ex-dividend
date is 2 May 2012 and the record date 4 May 2012.
Management presentation
Analysts and investors will be able to access the Admiral Group management
presentation which commences at 09:00 GMT on Wednesday 7 March 2012 by dialling
+ 44 (0)20 3059 8125. A copy of the presentation slides will be available at
www.admiralgroup.co.uk.
Chairman's statement
Each year since we floated in 2004 Admiral has increased its turnover, its
profitability, and its dividends to shareholders. 2011 was no exception, with
our turnover growing by 38%, our pre-tax profits by 13%, and our dividends by
11%. Admiral now insures 3.36 million vehicles across all its operations and has
an estimated 11% share of the UK private motor market.
A lot has been written about Admiral over the past six months, not all of which
I recognise as accurately reflecting the business I have chaired for the past
eleven years. I think it is, therefore, appropriate to restate the clear and
straightforward strategy that determines our direction and our priorities and
remains, we believe, as relevant now as when we first listed:-
* Grow profitably our share of the UK private motor insurance market
* Exploit the knowledge, skills and resources attaching to our established UK
businesses to promote our expansion overseas in both private motor and price
comparison
* Learn by taking relatively small and inexpensive steps to test different
approaches and identify the best way forward
* Operate a "capital-light" business model transferring a significant
proportion of our underwriting risk to reinsurance partners, which in turn
allows Admiral to distribute the majority of our earnings as dividends
* Give all our staff a stake in what they create by making them shareholders
* Recognise the responsibility we have to the communities of which we are a
part
With our staff, management and directors as shareholders we have all shared
directly the disappointment of our broader shareholder base at the need in
November to caution that our result for 2011 was likely to be somewhat lower
than the prevailing analyst consensus. This mainly arose from the UK insurance
business earned during 2011 which, whilst remaining very satisfactory at a 91%
combined ratio, was not as profitable as we had previously expected.
It is important to underline that this did not result from inadequate booked
reserves on prior years but from a higher than anticipated projected cost of
bodily injury claims on a part of the business written during our recent rapid
growth. The effect of our reinsurance agreements is that we receive a
substantial share of emerging profit on all the business we write, while only
bearing the risk of loss arising on a portion of that business. Changes to co-
and reinsurance arrangements over the past few years give Admiral an even
greater share of profits, meaning relatively small changes in the loss ratio
have a material impact on our results.
The energies of our UK team have been focussed on taking the appropriate action
as regards pricing and risk selection to put this issue behind us, re-establish
the same broad confidence in the future potential of our business that we
ourselves have, and restore lost shareholder value. Knowing as well as I do the
quality of our management and our staff I am very confident that 2012 will
demonstrate their capability and commitment to achieve this.
When all is said and done, Admiral's group pre-tax profits for 2011 at GBP299m
represent a 13% growth on the previous year and deliver a 59% return on capital
employed. They support total dividends for the year of 75.6 pence per share
which represents a distribution of 92% of our earnings. Our normal dividend,
growing in line with our growth in profits based on a 45% pay-out ratio,
amounted to 36.8 pence per share, whilst our available surplus, after taking
into account our required solvency, provision for our overseas expansion plans,
and a margin for contingencies, made possible a further special dividend of
38.8 pence per share. In addition to this margin, we retain a significant buffer
within our booked loss reserves against any future development, such as periodic
payment orders, that might increase the cost of claims beyond what we currently
project to be their ultimate cost.
This level of distribution, which sets Admiral apart from its peers, is made
possible by our sharing the underwriting of our business with our reinsurance
partners, and we have already announced the further extension of our current
rolling quota share reinsurance contracts to cover the 2014 underwriting year.
We are very conscious of the impact on our customers of the significant
increases in motor insurance premiums that the market has had to impose over the
last two years to reflect the increasing cost of claims, in particular those
relating to bodily injury. As the second largest player in the UK private motor
market with 2.9 million customers we, therefore, fully support any action that
will drive down the cost of claims. We also believe in open fair competition as
we gain market share by pricing competitively and offering covers that meet the
needs of our customers, such as Admiral MultiCar, which is now in its 7th year.
Our international expansion continues to make good progress across both car
insurance and price comparison notwithstanding the impact on our customers of
the challenging economic environment, particularly in southern Europe. In line
with our strategy, we have advanced over the last five years in relatively small
steps supported by a cautious level of investment. We now have over 300,000
customers outside the UK and last year we provided close to 4 million quotes
across our non-UK price comparison sites. Nowhere demonstrates better our test
and learn approach than the US where we are now writing business in 4 states as
we build our understanding of market dynamics and consumer buying behaviour.
With this growth, Kevin Chidwick has moved his commercial focus, alongside his
CFO responsibilities, from oversight of Confused.com to that of our US insurance
operations.
Let me finish by thanking all our people for the contribution they have
individually made to a year where we have extended our business still further
whether measured by revenue, profit, market share, or geography. It is their
ownership of their objectives, their commitment to their delivery, and the
creativity of their thinking, that underpin the delivery of our strategy and the
sustained profitable growth that I am confident we shall continue to be able to
report.
Alastair Lyons CBE
Chairman
Chief Executive's Statement
"It was the best of times, it was the worst of times, it was the age of wisdom,
it was the age of foolishness, it was the epoch of belief, it was the epoch of
incredulity, it was the season of Light, it was the season of Darkness, it was
the spring of hope, it was the winter of despair, we had everything before us,
we had nothing before us, we were all going direct to heaven, we were all going
direct the other way."
How did Mr. Dickens know, nearly 200 years ago, that his words could be used to
describe Admiral's 2011 year? (Or at least the way some pundits would see the
year.)
Based on some of the hyperbole you might have heard during the year, what, you
may be wondering, happened to Admiral in 2011? When last we left this narrative
the company was flying along at great pace; able to leap tall buildings in a
single bound. The market was raising rates and Admiral, lagging neatly just a
tad behind those rate hikes, was winning loads of new customers. Admiral was
starting from a combined ratio of 84% and so 2011 was looking like it would be a
giant winner.
Fast forward a year. Profits are up 13%, and in most situations you'd call this
a giant winner. But this is less than most people thought they would be. Far
less than I thought they would be, that's for sure. It has been a disappointing
year. Not because it was a bad year, but because so much more was expected.
Is Admiral broken? Not at all. Our ratios in the UK are still first rate.
Simply put, the problem is that we've increased our volatility by increasing
our profit commissions. So if our combined ratio moves up or down just a couple
of points it adds or subtracts tens of millions from our bottom line. This was
not the case in years past because we didn't get as much of the profits. So
there's a penalty to pay for greater profits: greater volatility.
Meanwhile, we continue to grow our businesses outside the UK to ensure continued
prosperity for Admiral Group well into the future. It was a good year for these
operations, although all of the markets we're in present their own individual
challenges.
In short, 2011 was the year of the chameleon: quite useful (they eat insects!)
but changeable and a bit fickle. As we enter 2012 I feel confident. If there
was any complacency developing in our operation it is certainly gone now. I
know we've got lots of people who work hard every day to ensure Admiral's
continued success well into the future.
For the eighth consecutive year, in fact every year since we became a public
company, Admiral Group has reported record turnover and record profits with a
return on capital of 59%. If this is, as Dickens put it, the winter of despair,
then I say: Please, Sir, may I have some more?
Henry Engelhardt CBE
Chief Executive Officer
Business Review
Group financial highlights and key performance indicators
2009 2010 2011
Turnover GBP1,077.4m GBP1,584.8m GBP2,190.3m
Net revenue GBP507.5m GBP640.8m GBP870.3m
Number of customers 2.08m 2.75m 3.36m
Loss ratio 69.0% 69.4% 78.9%
Expense ratio 23.1% 19.9% 16.8%
Combined ratio 92.1% 89.3% 95.7%
Profit before tax GBP215.8m GBP265.5m GBP299.1m
Earnings per share 59.0p 72.3p 81.9p
Turnover comprises total premiums written and other revenue
Once again in 2011, the Group grew significantly, with turnover increasing by
38% to GBP2,190.3 million (2010: GBP1,584.8 million) and the number of customers
served around the Group reaching 3.36 million - a rise of 22% (2010: 2.75
million).
Pre-tax profit increased by 13% to GBP299.1 million from GBP265.5 million and
earnings per share rose similarly to 81.9 pence (2010: 72.3 pence). Dividends
for the 2011 financial year total 75.6 pence (including a 36.5 pence recommended
final dividend) - up 11% on the 68.1 pence paid in respect of 2010.
The Group's core UK Car Insurance operation again accounted for 90% of Group
turnover and a similar proportion of customers. The business continued to grow
market share over the year, closing with 2.97 million vehicles insured. Though
it contributed GBP37.8 million to the total Group profit increase of GBP33.6
million, a higher combined ratio than in 2010 (resulting predominantly from
lower reserve releases) and lower profit commissions meant that the growth in
profit was more modest than in recent years, increasing by 14% to GBP313.6 million
from GBP275.8 million last year.
The Group's International Car Insurance operations insured a total of 306,000
vehicles at year-end, an increase of 88% over the end of 2010. Turnover for the
businesses rose by 79% to GBP115.0 million (comparatives here exclude the
AdmiralDirekt business in Germany which was sold in January 2011). Good
progress continues to be made in all locations, and each grew market share over
the year. The combined result from these young businesses was a loss of GBP9.5
million (up from GBP8.0 million in 2010).
In UK Price Comparison, Confused.com performed well in a tough environment,
generating profit of GBP16.1 million - marginally down on 2010 ( GBP16.9 million).
Market share in the core car insurance product was stable. Sustained investment
in developing International Price Comparison grew revenue and quotes
significantly, resulting in a loss of GBP5.6 million (2010: GBP4.8 million).
Other Group key performance indicators include:
* Group combined ratio at 95.7%, against 89.3% in 2010
* Net revenue up 36% to GBP870.3 million
* Return on average equity at 59% - in line with 2010
Total dividends paid and proposed for the financial year amount to 75.6 pence
per share ( GBP203 million), an increase of 11% on the previous year (68.1 pence;
GBP181 million).
The Group's results are presented in three key segments - UK Car Insurance,
International Car Insurance and Price Comparison. Other Group items are
summarised in a fourth section.
UK Car Insurance
Non-GAAP(*1) format income statement
GBPm 2009 2010 2011
Turnover(*2) 939.1 1,419.7 1,966.0
------------------------------
Total premiums written(*3) 804.7 1,237.6 1,728.8
------------------------------
Net insurance premium revenue 199.1 269.4 418.6
Investment income 7.5 8.3 10.6
Net insurance claims (138.7) (192.6) (335.5)
Net insurance expenses (30.3) (32.4) (46.7)
------------------------------
Underwriting profit 37.6 52.7 47.0
Profit commission 54.2 67.0 61.8
Net ancillary income 106.3 142.4 181.5
Instalment income 8.8 13.7 23.3
------------------------------
UK Car Insurance profit before tax 206.9 275.8 313.6
------------------------------
*1 GAAP = Generally Accepted Accounting Practice
*2 Turnover (a non-GAAP measure) comprises total premiums written and other
revenue
*3 Total premiums written (non-GAAP) includes premium underwritten by co-
insurers
Key performance indicators
2009 2010 2011
Reported loss ratio 66.9% 68.3% 77.3%
Reported expense ratio 18.0% 15.2% 14.0%
Reported combined ratio 84.9% 83.5% 91.3%
Written basis expense ratio 16.9% 14.4% 13.2%
Claims reserve releases GBP31.3m GBP23.5m GBP10.3m
Vehicles insured at year-end 1.86m 2.46m 2.97m
Ancillary contribution per vehicle GBP72 GBP77 GBP76
Other revenue (including ancillary contribution) per
vehicle GBP77 GBP84 GBP84
UK Car Insurance - Co-insurance and Reinsurance
Admiral (in the UK and internationally) makes significant use of proportional
risk sharing agreements, where insurers outside the Group underwrite a majority
of the risk generated, either though co-insurance or reinsurance contracts.
These arrangements include attractive profit commission terms which allow
Admiral to retain a significant portion of the profit generated.
The two principal advantages of the arrangements are:
- Capital efficiency - The majority of the capital supporting the underwriting
is held outside the Group. As Admiral is typically able to retain much of the
profit generated via profit commission, the return on Group capital is higher
than in an insurance company with a standard business model
- Underwriting risk mitigation - The co-insurer and reinsurers bear their
proportional shares of claims expenses and hence provide protection should
results worsen substantially
Arrangements for 2011 to 2014
In early 2012 the Group was pleased to announce extensions to its arrangements
such that capacity is fully placed until the end of 2014. The underwriting
splits can be summarised as follows:
2011 2012 2013 2014
Admiral 27.50% 25.00% 25.00% 25.00%
Great Lakes (Munich Re) 40.00% 40.00% 40.00% 40.00%
New Re 11.25% 13.25% 13.25% 13.25%
Hannover Re 8.75% 8.75% 8.75% 8.75%
Swiss Re 7.50% 7.50% 7.50% 9.00%
Mapfre Re 2.50% 3.00% 3.00% 4.00%
XL Re 2.50% 2.50% 2.50% -
Total 100.00% 100.00% 100.00% 100.00%
The proportion underwritten by Great Lakes (a UK subsidiary of Munich Re) is on
a co-insurance basis, such that 40% of all motor premium and claims for the
2011 year accrues directly to Great Lakes and does not appear in the Group's
income statement. Similarly, Great Lakes reimburses the Group for its
proportional share of expenses incurred in acquiring and administering the motor
business.
That contract will run until at least the end of 2016, and will see Great Lakes
co-insure 40% of the UK business for the remaining period. Admiral has
committed to retain at least 25% of the UK business for the duration, whilst the
allocation of the balance is at Admiral's discretion.
All other agreements are quota share reinsurance.
The European and US arrangements are explained below in the International Car
Insurance section.
UK Car Insurance Financial Performance
Further commentary on the UK business and market conditions is provided by David
Stevens, in his Chief Operating Officer's Review.
In line with expectations, the UK business again grew significantly during
2011, though the rate of growth slowed in the second half of the year.
Admiral's price changes over the course of 2011 have run ahead of the market
(according to price surveys and internal data) and this contributed to the slow-
down in growth in the second half of the year (vehicle count in H2 grew by 5%).
Admiral's rates ended 2011 around 15% higher than a year earlier. Average
written premium increased by around 12%.
Total premiums written in the UK increased by 40% to GBP1,728.8 million (2010:
GBP1,237.6 million) whilst the number of vehicles insured at year-end increased
21% to 2.97 million (2010: 2.46 million).
Claims experience in 2011
The reported loss ratio for 2011 is 77.3%, up from 68.3% in 2010. A significant
proportion of the increase relates to a lower level of releases from prior year
reserves, which in 2011 only equated to 2.5% of net premium revenue, compared to
8.7% in 2010. The loss ratio excluding the impact of releases was 79.8% in
2011, up from 77.0% in 2010.
The two main factors contributing to the higher loss ratio are:
* Disappointing development in the number of 2009 and 2010 bodily injury
claims that emerged as higher value (typically in excess of GBP100,000) claims
than previously anticipated; and
* The proportion of new 2011 claims that were reported and reserved as higher
value claims
The above experience was of particular note in quarters two and three of 2011.
Experience in the first quarter of the year was in line with prior years, and
in quarter four was better than quarter three.
Development during 2011 of underwriting years prior to 2009 was more positive in
the second half of the year than in the first and was in line with past
patterns.
To better understand and address the above claims experience, management has
undertaken various actions including:
* Detailed claims review (including additional independent actuarial analysis
and independent expert reviews of higher value claims files)
* Higher relative price increases, slowing the rate of growth in the second
half of 2011
* Pricing action to shift the portfolio away from high bodily injury claims
frequency segments
* Accelerating initiatives to further improve risk selection
Claims reserving
There has been no change in Admiral's reserving policy, which is initially to
reserve conservatively, above independent and internal projections of ultimate
loss ratios. This is designed to create a significant margin held in reserves
to allow for unforeseen adverse development in open claims and would typically
result in Admiral making above industry average reserve releases.
As profit commission income is recognised in the income statement in line with
loss ratios accounted for on our own claims reserves, the reserving policy also
results in profit commission income being deferred and released over time.
In determining the quantum of releases from prior years, we seek to maintain a
consistent level of prudence in reserves based on actuarial projections of
ultimate loss ratios.
The attractiveness of the profit commission arrangements under Admiral's co- and
reinsurance contracts also results in a level of volatility in the income
statement, as, despite only underwriting around one quarter of the risk on its
own books, Admiral earns the majority of the profit achieved on the whole book.
The effect of the higher booked loss ratio in 2011 (despite a 55% increase in
net premium revenue) was a reduction in the level of profit commission, which
fell to GBP61.8 million (15% of premium) from GBP67.0 million (25% of premium).
The expense ratio benefited from increased average premiums, and fell to 14.0%
from 15.2% in 2010. Admiral's expense ratio continues to run at around half the
market average.
As a result of the higher loss ratio, only slightly offset by the improved
expense ratio, the combined ratio in 2011 increased to 91.3% from 83.5%.
Although the ratio has worsened, the business remains highly profitable and
management currently estimate the ultimate combined ratio on the business earned
in 2011 will be between 85% and 90%.
Other revenue (including net ancillary contribution and instalment income)
increased by 31% to GBP204.8 million from GBP156.1 million. This increase is in
line with the increase in the average number of vehicles insured over the
period. Ancillary contribution per vehicle was GBP76 in 2011, broadly consistent
with 2010. Other revenue (which includes ancillaries and instalment income) per
vehicle was GBP84 in both 2011 and 2010.
Ancillary income - analysis of contribution:
GBPm 2009 2010 2011
Ancillary contribution 125.6 168.3 213.9
Instalment income 8.8 13.7 23.3
---------------------------
Other revenue 134.4 182.0 237.2
Internal costs (19.3) (25.9) (32.4)
---------------------------
Net other revenue 115.1 156.1 204.8
---------------------------
Ancillary contribution per vehicle GBP72 GBP77 GBP76
---------------------------
Other revenue per vehicle GBP77 GBP84 GBP84
---------------------------
Overall, despite the higher combined ratio, pre-tax profit grew by 14% to GBP313.6
million (2010: GBP275.8 million).
UK Car Insurance Review - David Stevens, Chief Operating Officer
For both ourselves and the market as a whole, 2011 was a year of two halves.
For the market as a whole, the middle of the year marked the point when the
dramatic premium inflation that kicked off in late 2009 ground to a halt. Over
the 21 months to mid-2011 market price surveys suggested new business rate
increases of almost 50%. These surveys significantly overstate the level of
premium increases actually achieved, but it was undoubtedly a period of rapid
premium inflation. In contrast, in the following six months the market drifted
down by 1% as the shedders slowed their rate of market share decline and the
growers, including ourselves, continued to add share.
A combination of benign weather, higher policy excesses, higher petrol prices
and lower disposable income led to a fall in claims frequency of over 10% for
the market as a whole. This also tempered insurers' appetite for price
increases, and helped slow the relentless rise in the cost of bodily injury
claims in the UK market.
The rapid increase in premiums put car insurance unusually high on the political
agenda during 2011. The legislation following the Jackson recommendations, Jack
Straw's private members' bill, scrutiny by the House of Commons Transport
Committee and then, towards the end of the year, the OFT exploration of a wide
range of issues to do with the car insurance market, all took car insurance from
the personal finance sections of the press to the front pages. Hopefully, the
result will be some much needed reform of an often dysfunctional system to the
benefit of customers and ultimately insurers.
For ourselves 'the game of two halves' was more about the rate of policy growth
than the rate of premium increases. In the first half of 2011 our vehicle count
grew 15%, in the second half 5% . Our competitiveness on price comparison sites
peaked in March and fell month on month thereafter as we deliberately maintained
the pace of price increases above and beyond the increases being put through by
our competitors.
Our relatively higher price increases through most of 2011 were, in part, a
response to a disappointing bodily injury claims experience in quarters two and
three. The main source of the disappointment was in the proportion of 2009 and
2010 claims that were emerging as potentially bigger, costlier claims than
anticipated and the proportion of new, 2011 claims that were being identified as
potentially big claims, and reserved accordingly. The development of earlier
years remained reassuringly stable with small improvements in expected ultimate
loss ratios across most years.
Disappointment should perhaps be set in context. The currently anticipated
combined ratio for 2011 is in the late eighties, a pretty attractive outcome
both absolutely and relative to the combined ratio of the market as a whole.
However, given our price increases and our established history of substantial
over performance versus market, the outcome, if confirmed by the subsequent
development of these claims, would qualify as a 'disappointment'. There remain,
however, many opportunities that we have identified to continue to do things
better, and avoid some of the issues we encountered in 2011, notably in terms of
risk selection. After the rapid growth in 2010 and 2011, our focus in 2012 will
be very much on realising these opportunities.
International Car Insurance
Non-GAAP format income statement(*1)
GBPm 2009 2010 2011
Turnover 47.2 77.6 122.2
---------------------------
Total premiums written 43.0 71.0 112.5
---------------------------
Net insurance premium revenue 12.8 18.7 27.2
Investment income 0.2 0.1 0.2
Net insurance claims (13.0) (15.9) (28.3)
Net insurance expenses (13.0) (16.5) (16.2)
---------------------------
Underwriting result (13.0) (13.6) (17.1)
Net ancillary income 3.3 5.3 8.0
Other revenue and charges 0.2 0.3 (0.4)
---------------------------
International Car Insurance result (9.5) (8.0) (9.5)
---------------------------
Note - Pre-launch costs excluded
Key Performance Indicators(*1)
GBPm 2009 2010 2011
Reported loss ratio 102% 85% 104%
Reported expense ratio 102% 88% 60%
------------------------------
Reported combined ratio 204% 173% 164%
Vehicles insured 121,000 195,000 306,000
Ancillary contribution per vehicle GBP32 GBP33 GBP31
Other revenue per vehicle GBP35 GBP34 GBP32
*1 Figures include AdmiralDirekt (sold in January 2011)
International Car Insurance Co-insurance and Reinsurance
Significant use of reinsurance is also a feature of the Group's insurance
operations outside the UK.
In Spain and Italy, Admiral retains 35% of the risks, with the remaining 65%
underwritten by Munich Re. In France, Admiral retains 30%, with 70% reinsured
among three reinsurers.
Following the sale of AdmiralDirekt in early 2011, all premiums written and
earned in 2011 in Germany are 100% reinsured to the acquirer. The only risk
retained by the Group relates to the development of open claims on accidents
prior to 1 January 2011. The total exposure is insignificant.
In the USA, the Group retains one third of the underwriting, with the remainder
shared between two reinsurers. Both bear their proportional share of expenses
and underwriting, subject to certain caps on the reinsurers' total exposures.
All contracts have profit commission terms that allow Admiral to receive a
proportion of the profit earned on the underwriting once the business reaches
cumulative profitability.
The contracts in place for Italy, France and the USA include proportional
sharing of ancillary profits.
International Car Insurance Financial Performance
The Group operates four car insurers outside the UK - Admiral Seguros (Spain),
ConTe (Italy), Elephant Auto (USA) and L'olivier Assurances (France).
The combined businesses continued to develop and increase market share during
2011, ending the year with a combined total of over 300,000 vehicles insured.
This represents an increase of over 140,000 (around 90%) on the end of 2010
(AdmiralDirekt figures excluded).
Combined turnover reached GBP115.0 million (2010: GBP77.6 million, again excluding
AdmiralDirekt) and in aggregate, the combined ratio improved to 164% from 173%.
The overall underwriting loss of GBP17.1 million (2010: GBP13.6 million) was
mitigated by net other revenue of GBP7.6 million ( GBP5.6 million) to give an overall
loss of GBP9.5 million, up from GBP8.0 million in 2010.
Each market the Group operates in provides different challenges, but the Group
is satisfied with the progress made in each business during 2011.
Price Comparison
Non-GAAP format income statement
GBPm 2009 2010 2011
Revenue:
Motor 62.2 59.6 72.2
Other 18.3 16.1 18.2
---------------------------
Total 80.5 75.7 90.4
Operating expenses (55.6) (63.6) (79.9)
---------------------------
Operating profit 24.9 12.1 10.5
---------------------------
Confused.com profit 25.7 16.9 16.1
International Price Comparison result (0.8) (4.8) (5.6)
---------------------------
24.9 12.1 10.5
---------------------------
UK Price Comparison - Confused.com
2011 was a much more stable year for Confused than 2010, with a broadly flat
profit of GBP16.1 million on the prior year (2010: GBP16.9 million). This was a
strong achievement in a market that has become yet more competitive, with ever
higher amounts spent on media by the main competitors.
Revenue grew by around 8% to GBP77.6 million (2010: GBP71.8 million), though the
competitive market required greater media investment and resulted in a fall in
operating margin to 21% (24% in 2010).
Market share in car insurance comparison ended the year broadly in line with the
end of 2010.
Revenue from other products contributed around 22% of revenue - in line with
2010.
International Price Comparison
The Group operates three price comparison businesses outside the UK - in Spain
(Rastreator.com), France (LeLynx.fr) and Italy (Chiarezza.it).
The combined operations grew strongly in 2011, delivering revenue of GBP12.8
million, a substantial increase on 2010 ( GBP3.9 million). Momentum built through
the year, with GBP7.8 million of the full year total generated in the second half
of the year.
Total quotes provided across all products also rose substantially, to 3.8
million in 2011 from 1.7 million last year.
The three businesses made a combined loss of GBP5.6 million, up from GBP4.8 million
in 2010.
Other Group Items
GBPm 2009 2010 2011
Gladiator operating profit 2.4 2.7 2.8
Group net interest income 1.1 1.1 2.9
Share scheme charges (9.2) (15.0) (18.6)
Expansion costs (2.0) (1.1) (0.8)
Other central overhead (1.7) (2.1) (1.8)
Gladiator
Gladiator is a commercial vehicle insurance broker offering van insurance and
associated products, typically to small businesses. Distribution is via
telephone and internet (including price comparison websites).
Non-GAAP income statement and key performance indicators
GBPm 2009 2010 2011
Revenue 10.6 11.8 11.7
Expenses (8.2) (9.1) (8.9)
---------------------------
Operating profit 2.4 2.7 2.8
---------------------------
Operating margin 23% 23% 24%
Customer numbers 93,400 94,500 87,900
Gladiator faced a challenging market in 2011 with significant price competition.
Revenue was lower than in 2010 as a result of lower sales resulting from the
increased competition.
Expenses were also lower than in 2010, and consequently operating profit
increased modestly to GBP2.8 million from GBP2.7 million, whilst the operating
margin percentage also moved up slightly to 24% from 23%.
Share scheme charges
The charge in the income statement increased to GBP18.6 million from GBP15.0 million
for two key reasons:
* Higher share price at award: The weighted average share price for shares
awarded in 2011 was GBP15.60 compared to GBP13.40 in 2010 (+16%)
* Higher number of shares awarded: In 2011, a total of 2.6 million shares
were awarded under the Group's schemes - 10% higher than in 2010 (2.4
million), reflecting growth in Group headcount
Investments and Cash
Investment Strategy
There was no change in investment strategy, and the Group's funds continue to be
held either in money market funds, term deposits or as cash at bank. The
Group's Investment Committee continues to perform regular reviews of the
strategy to ensure it remains appropriate.
The key focus of the Group's investment strategy is capital preservation, with
an additional priority being a focus on low volatility of investment return.
Cash and investments analysis
31 December 2011
-------------------------------------------------
International
UK Car Car Price
Insurance Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
Money market funds 761.1 66.0 - 35.0 862.1
Long-term cash deposits 290.7 6.3 - - 297.0
Cash 117.8 38.9 8.8 59.1 224.6
-------------------------------------------------
Total 1,169.6 111.2 8.8 94.1 1,383.7
-------------------------------------------------
31 December 2010
-----------------------------------------------
International
UK Car Car Price
Insurance Insurance Comparison Other Total
GBPm GBPm GBPm GBPm GBPm
Money market funds 333.8 29.8 - - 363.6
Long-term cash deposits 283.0 6.6 - 10.0 299.6
Cash 90.6 40.3 11.2 104.6 246.7
-----------------------------------------------
Total 707.4 76.7 11.2 114.6 909.9
-----------------------------------------------
The main change in the allocation of funds between the two main investment types
(money market funds and term deposits) was an increase in the proportion
allocated to money market funds (to 62% of total cash plus investments, from
40%). This was in order to reduce relative exposure to deposit counterparties.
All investment objectives continue to be met. The Group's holding of non-UK
sovereign debt is insignificant.
Average balances held during 2011 continued to grow substantially, in line with
the growth of the business in the UK and internationally. Total investment and
interest income rose to GBP13.7 million from GBP9.5 million in 2010. With little or
no change in benchmark or market interest rates, the average rate of return on
invested sterling funds (composing the large majority of total balances) was
just over 1% in 2011 (up marginally on 2010).
The Group continues to generate substantial amounts of cash, and the 'capital-
light' business model enables the distribution of the majority of post-tax
profits.
GBPm 2009 2010 2011
Operating cash flow, before transfers to investments 286.4 522.0 779.1
Transfers to financial investments (10.5) (240.8) (493.9)
------------------------
Operating cash flow 275.9 281.2 285.2
Tax and interest payments (49.1) (69.5) (95.3)
Investing cash flows (11.8) (11.1) (12.9)
Financing cash flows (largely dividends) (142.2) (164.9) (198.1)
Foreign currency translation impact (5.3) (0.8) (1.0)
------------------------
Net cash movement 67.5 34.9 (22.1)
------------------------
Net increase in cash and financial investments 77.8 276.9 473.8
------------------------
The main items contributing to the significant operating cash inflow are as
follows:
GBPm 2009 2010 2011
Profit after tax 156.9 193.6 221.3
Change in net insurance liabilities 51.1 129.7 244.3
Net change in trade receivables and liabilities (4.6) 101.4 203.7
Non-cash income statement items 24.1 25.4 32.0
Tax and net interest expense 58.9 71.9 77.8
------------------------
Operating cash flow, before transfers to
investments 286.4 522.0 779.1
------------------------
The key features to note are:
* Total cash plus investments increased by GBP474 million (52%), largely driven
by significant growth in the UK Car Insurance business. A higher portion of
the cash inflow was transferred into investments, resulting in a small
decrease in the amount of cash held at 31 December 2011
* Operating cashflow, before transfers into investments, was GBP779 million (an
increase of 49%) - consistent with the increase noted above
Other financial items
Taxation
The taxation charge reported in the income statement is GBP77.8 million (2010:
GBP71.9 million), which equates to 26.0% (2010: 27.1%) of profit before tax. The
lower effective rate of taxation results from the lower average rate of UK
corporation tax in 2011.
Earnings per share
Basic earnings per share rose by 13% to 81.9 pence from 72.3 pence. The change
is in line with pre- and post-tax profit growth.
Dividends
The Directors have proposed a final dividend for the financial year of 36.5
pence per share. Total dividends for the year amount to 75.6 pence per share,
11% higher than the 68.1 pence distributed in respect of 2010.
The final dividend is made up of a 17.4 pence normal element based on the stated
dividend policy of distributing 45% of post tax profits, and a further special
element of 19.1 pence. The special dividend is calculated with reference to
distributable reserves after considering capital that is required to be held a)
for regulatory purposes; b) to fund expansion activities; and c) as a further
prudent buffer against unforeseen events.
The payment date is 1 June 2012, ex-dividend date 2 May and record date 4 May.
Consolidated income statement
Year ended:
31 December 2011 31 December 2010
Note: GBPm GBPm
Insurance premium revenue 959.7 574.6
Insurance premium ceded to (513.9) (286.5)
reinsurers
-----------------------------------
Net insurance premium revenue 5 445.8 288.1
Other revenue 6 349.0 276.2
Profit commission 7 61.8 67.0
Investment and interest income 8 13.7 9.5
-----------------------------------
Net revenue 870.3 640.8
Insurance claims and claims handling (785.9) (416.7)
expenses
Insurance claims and claims handling
expenses recoverable from reinsurers 422.1 208.2
-----------------------------------
Net insurance claims (363.8) (208.5)
Operating expenses 9,10 (188.8) (151.8)
Share scheme charges 9, 24 (18.6) (15.0)
-----------------------------------
Total expenses (571.2) (375.3)
Profit before tax 299.1 265.5
Taxation expense 12 (77.8) (71.9)
-----------------------------------
Profit after tax 221.3 193.6
-----------------------------------
Profit after tax attributable to:
Equity holders of the parent 221.2 193.8
Non-controlling interests 0.1 (0.2)
-----------------------------------
221.3 193.6
-----------------------------------
Earnings per share:
Basic 14 81.9p 72.3p
-----------------------------------
Diluted 14 81.7p 72.2p
-----------------------------------
+------------------------------------------------------------------------------+
|Dividends declared and paid (total) 13 198.8 164.7|
| |
|Dividends declared and paid (per 13 74.6p 62.4p|
|share) |
+------------------------------------------------------------------------------+
Consolidated statement of comprehensive income
Year ended:
31 December 2011 31 December 2010
GBPm GBPm
Profit for the period 221.3 193.6
Other comprehensive income
Exchange differences on translation
of foreign operations (1.0) (0.8)
----------------------------------
Other comprehensive income for the
period, net of income tax (1.0) (0.8)
----------------------------------
Total comprehensive income
for the period 220.3 192.8
----------------------------------
Total comprehensive income for the
period attributable to:
Equity holders of the parent 220.2 193.0
Non-controlling interests 0.1 (0.2)
----------------------------------
220.3 192.8
----------------------------------
Consolidated statement of financial position
As at:
31 December 2011 31 December 2010
Note: GBPm GBPm
ASSETS
Property and equipment 15 17.6 13.6
Intangible assets 16 87.5 82.9
Deferred income tax 23 10.3 12.4
Reinsurance assets 18 639.8 357.0
Trade and other receivables 17, 19 52.1 47.9
Financial assets 17 1,583.0 1,004.7
Cash and cash equivalents 17, 20 224.6 246.7
Assets held for sale - 1.5
----------------------------------
Total assets 2,614.9 1,766.7
----------------------------------
EQUITY
Share capital 24 0.3 0.3
Share premium account 13.1 13.1
Other reserves 3.2 4.2
Retained earnings 377.3 332.7
----------------------------------
Total equity attributable to equity
holders of the parent 393.9 350.3
Non-controlling interests 0.5 0.4
----------------------------------
Total equity 394.4 350.7
----------------------------------
LIABILITIES
Insurance contracts 18 1,333.7 806.6
Trade and other payables 17, 21 856.6 561.0
Current tax liabilities 30.2 48.4
----------------------------------
Total liabilities 2,220.5 1,416.0
----------------------------------
Total equity and total liabilities 2,614.9 1,766.7
----------------------------------
Consolidated cash flow statement
31 31
December December
Note 2011 2010
GBPm GBPm
Profit after tax 221.3 193.6
Adjustments for non-cash items:
- Depreciation 6.1 4.6
- Amortisation of software 3.3 2.7
- Change in unrealised gains on investments (1.9) (1.3)
- Other gains and losses 0.9 0.9
- Share scheme charge 24 23.6 18.5
Change in gross insurance contract liabilities 527.1 273.7
Change in reinsurance assets (282.8) (144.0)
Change in trade and other receivables, including from
policyholders (88.4) (152.9)
Change in trade and other payables, including tax and
social security 292.1 254.3
Taxation expense 77.8 71.9
------------------
Cash flows from operating activities, before movements in
investments 779.1 522.0
Net cash flow into investments (493.9) (240.8)
------------------
Cash flows from operating activities, net of movements in
investments 285.2 281.2
Taxation payments (95.3) (69.5)
------------------
Net cash flow from operating activities 189.9 211.7
Cash flows from investing activities:
Proceeds from investing activities 3.9 -
Purchases of property, equipment and software (16.8) (11.1)
------------------
Net cash used in investing activities (12.9) (11.1)
Cash flows from financing activities:
Capital element of new finance leases 1.0 0.4
Repayment of finance lease liabilities (0.3) (0.6)
Equity dividends paid 13 (198.8) (164.7)
------------------
Net cash used in financing activities (198.1) (164.9)
------------------
Net (decrease) /increase in cash and cash equivalents (21.1) 35.7
Cash and cash equivalents at 1 January 246.7 211.8
Effects of changes in foreign exchange rates (1.0) (0.8)
------------------
Cash and cash equivalents at end of period 20 224.6 246.7
------------------
Consolidated statement of changes in equity
Share Foreign Retained Non-
Share premium exchange profit and controlling Total
capital account reserve loss interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2010 0.3 13.1 5.0 281.8 0.6 300.8
Profit for the period - - - 193.8 (0.2) 193.6
Other comprehensive
income
Currency translation - - (0.8) - (0.8)
differences -
--------------------------------------------------------
Total comprehensive
income for the period - - (0.8) 193.8 (0.2) 192.8
--------------------------------------------------------
Transactions with
equity-holders
Dividends - - - (164.7) - (164.7)
Share scheme credit - - - 18.5 - 18.5
Deferred tax charge on
share scheme credit - - - 3.3 - 3.3
--------------------------------------------------------
Total transactions with
equity-holders - - - (142.9) - (142.9)
--------------------------------------------------------
As at 31 December 2010 0.3 13.1 4.2 332.7 0.4 350.7
--------------------------------------------------------
At 1 January 2011 0.3 13.1 4.2 332.7 0.4 350.7
Profit for the period - - - 221.2 0.1 221.3
Other comprehensive
income
Currency translation - - (1.0) - (1.0)
differences -
--------------------------------------------------------
Total comprehensive
income for the
period - - (1.0) 221.2 0.1 220.3
--------------------------------------------------------
Transactions with
equity-holders
Dividends - - - (198.8) - (198.8)
Share scheme credit - - - 23.6 - 23.6
Deferred tax credit on
share scheme credit - - - (1.4) - (1.4)
--------------------------------------------------------
Total transactions with
equity-holders - - - (176.6) - (176.6)
--------------------------------------------------------
As at 31 December 2011 0.3 13.1 3.2 377.3 0.5 394.4
--------------------------------------------------------
Notes to the financial statements
1. General information and basis of preparation
General information
Admiral Group plc is a Company incorporated in England and Wales. Its
registered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its
shares are listed on the London Stock Exchange.
The consolidated financial statements comprise the results and balances of the
Company and its subsidiaries (together referred to as the Group) for the year
ended 31 December 2011 and comparative figures for the year ended 31 December
2010. The financial statements of the Company's subsidiaries are consolidated
in the Group financial statements. The Company controls 100% of the voting
share capital of all its principal subsidiaries, except Rastreator.com Limited.
The Parent Company financial statements present information about the Company
as a separate entity and not about its Group. In accordance with International
Accounting Standard (IAS) 24, transactions or balances between Group companies
that have been eliminated on consolidation are not reported as related party
transactions in the consolidated financial statements.
The consolidated financial statements have been prepared and approved by the
Directors in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU). The Company has elected to prepare its
Parent Company financial statements in accordance with UK Generally Accepted
Accounting Practice (GAAP).
Adoption of new and revised standards
The Group has applied all adopted IFRS and interpretations endorsed by the EU at
31 December 2011, including all amendments to extant standards that are not
effective until later accounting periods.
There are a number of standards, amendments to standards and interpretations
that were issued by 31 December 2011 but have either yet to be endorsed by the
EU, or were endorsed shortly after the year end. These are as follows:
* IFRS 9 Financial Instruments
* IFRS 10 Consolidated Financial Statements
* IFRS 11 Joint Arrangements
* IFRS 12 Disclosures of Interests in Other Entities
* IFRS 13 Fair Value Measurement
* IAS 27 Separate Financial Statements
* IAS 28 Investments in Associates and Joint Ventures
* Amendments to IFRS 12, IFRS 1, IAS 1, IAS 19, IFRS 7, and IAS 32
* IFRIC interpretation 20: Stripping costs in the production phase of a
surface mine
None of these standards, amendments to standards or interpretations of current
standards above will have a material impact on the Group's financial statements
in future periods.
In addition, none of the standards or interpretations adopted for the first time
in the year have had a material impact on the consolidated financial results or
position of the Group for the year ended 31 December 2011.
Basis of preparation
The accounts have been prepared on a going concern basis. In considering the
appropriateness of this assumption, the Board have reviewed the Group's
projections for the next twelve months and beyond, including cash flow forecasts
and regulatory capital surpluses. The Group has no debt.
The directors have a reasonable expectation that the company has adequate
resources to continue in operational existence for the foreseeable future. Thus
they continue to adopt the going concern basis in preparing the annual financial
statements.
Further information regarding the company's business activities, together with
the factors likely to affect its future development, performance and position,
is set out in the Business Review. Further information regarding the financial
position of the company, its cash flows, liquidity position and borrowing
facilities are described in the Business Review. In addition note 17 to the
financial statements includes the company's objectives, policies and processes
for managing its capital; its financial risk management objectives; details of
its financial instruments; and its exposures to credit risk and liquidity risk.
The accounting policies set out in note 3 to the financial statements have,
unless otherwise stated, been applied consistently to all periods presented in
these Group financial statements.
The financial statements are prepared on the historical cost basis, except for
the revaluation of financial assets classified as at fair value through profit
or loss.
Subsidiaries are entities controlled by the Group. Control exists when the
Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that are currently exercisable or
convertible are taken into account. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
The preparation of financial statements in conformity with adopted IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the year in
which the estimate is reviewed if this revision affects only that year, or in
the year of the revision and future years if the revision affects both current
and future years. To the extent that a change in an accounting estimate gives
rise to changes in assets and liabilities, it is recognised by adjusting the
carrying amount of the related asset or liability in the period of the change.
2. Critical accounting judgements and estimates
Judgements:
In applying the Group's accounting policies as described in note 3, management
has primarily applied judgement in the classification of the Group's contracts
with reinsurers as reinsurance contracts. A contract is required to transfer
significant insurance risk in order to be classified as such. Management reviews
all terms and conditions of each such contract, and if necessary obtains the
opinion of an independent expert at the negotiation stage in order to be able to
make this judgement.
Estimation techniques used in calculation of claims provisions:
Estimation techniques are used in the calculation of the provisions for claims
outstanding, which represent a projection of the ultimate cost of settling
claims that have occurred prior to the balance sheet date and remain unsettled
at the balance sheet date.
The key area where these techniques are used relates to the ultimate cost of
reported claims. A secondary area relates to the emergence of claims that
occurred prior to the balance sheet date, but had not been reported at that
date.
The estimates of the ultimate cost of reported claims are based on the setting
of claim provisions on a case-by-case basis, for all but the simplest of claims.
The sum of these provisions are compared with projected ultimate costs using a
variety of different projection techniques (including incurred and paid chain
ladder and an average cost of claim approach) to allow an actuarial assessment
of their likely accuracy. They include allowance for unreported claims.
The most significant sensitivity in the use of the projection techniques arises
from any future step change in claims costs, which would cause future claim cost
inflation to deviate from historic trends. This is most likely to arise from a
change in the regulatory or judicial regime that leads to an increase in awards
or legal costs for bodily injury claims that is significantly above or below the
historical trend.
The claims provisions are subject to independent review by the Group's actuarial
advisors. Management's reserving policy is to reserve at a level above best
estimate assumptions to allow for unforeseen adverse claims development. For
further detail on objectives, policies and procedures for managing insurance
risk, refer to note 18 of the financial statements.
Future changes in claims reserves also impact profit commission income, as the
recognition of this income is dependent on the loss ratio booked in the
financial statements, and cash receivable is dependent on actuarial projections
of ultimate loss ratios.
3. Significant accounting policies
a) Revenue recognition
Premiums, ancillary income and profit commission:
Premiums relating to insurance contracts are recognised as revenue
proportionally over the period of cover. Premiums with an inception date after
the end of the period are held in the statement of financial position as
deferred revenue. Outstanding collections from policyholders on deferred revenue
are recognised within policyholder receivables.
Revenue earned on the sale of ancillary products and revenue from policies paid
by instalments is credited to the income statement over the period matching the
Group's obligations to provide services. Where the Group has no remaining
contractual obligations, the revenue is recognised immediately. An allowance is
made for expected cancellations where the customer may be entitled to a refund
of ancillary amounts charged.
Under some of the co-insurance and reinsurance contracts under which motor
premiums are shared or ceded, profit commission may be earned on a particular
year of account, which is usually subject to performance criteria such as loss
ratios and expense ratios. The commission is dependent on the ultimate outcome
of any year, with revenue being recognised when loss and expense ratios used in
the preparation of the financial statements, move below an agreed threshold.
Revenue from Price comparison and Gladiator:
Commission from these activities is credited to revenue on the sale of the
underlying insurance policy.
Investment income:
Investment income from financial assets comprises interest income and net gains
(both realised and unrealised) on financial assets classified as fair value
through profit and loss and interest income on held to maturity deposits.
b) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in millions of pounds sterling, which is the Group's
presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions,
and from the translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income
statement.
Translation differences on non-monetary items, such as equities held at fair
value through profit or loss, are reported as part of the fair value gain or
loss.
Translation of financial statements of foreign operations
The financial statements of foreign operations whose functional currency is not
pounds sterling are translated into the Group presentation currency (sterling)
as follows:
(i) Assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet;
(ii) Income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the date of the transaction); and
(iii) All resulting exchange differences are recognised in other comprehensive
income and in a separate component of equity.
On disposal of a foreign operation, the cumulative amount recognised in equity
relating to that particular operation is recognised in the income statement.
c) Insurance contracts and reinsurance assets
Premiums:
The proportion of premium receivable on in-force policies relating to unexpired
risks is reported in insurance contract liabilities and reinsurance assets as
the unearned premium provision - gross and reinsurers' share respectively.
Claims:
Claims and claims handling expenses are charged as incurred, based on the
estimated direct and indirect costs of settling all liabilities arising on
events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the estimated cost
of settling all claims incurred but unpaid at the balance sheet date, whether
reported or not. Anticipated reinsurance recoveries are disclosed separately as
assets.
Whilst the Directors consider that the gross provisions for claims and the
related reinsurance recoveries are fairly stated on the basis of the information
currently available to them, the ultimate liability will vary as a result of
subsequent information and events and may result in significant adjustments to
the amounts provided.
Adjustments to the amounts of claims provisions established in prior years are
reflected in the income statement for the period in which the adjustments are
made and disclosed separately if material. The methods used, and the estimates
made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated amount
required over and above unearned premiums (net of deferred acquisition costs) to
meet future claims and related expenses.
Co-insurance:
The Group has entered into certain co-insurance contracts under which insurance
risks are shared on a proportional basis, with the co-insurer taking a specific
percentage of premium written and being responsible for the same proportion of
each claim. As the contractual liability is several and not joint, neither the
premiums nor claims relating to the co-insurance are included in the income
statement. Under the terms of these agreements the co-insurers reimburse the
Group for the same proportionate share of the costs of acquiring and
administering the business.
Reinsurance assets:
Contracts entered into by the Group with reinsurers under which the Group is
compensated for losses on the insurance contracts issued by the Group are
classified as reinsurance contracts. A contract is only accounted for as a
reinsurance contract where there is significant insurance risk transfer between
the insured and the insurer.
The benefits to which the Group is entitled under these contracts are held as
reinsurance assets.
The Group assesses its reinsurance assets for impairment on a regular basis, and
in detail every six months. If there is objective evidence that the asset is
impaired, then the carrying value will be written down to its recoverable
amount.
d) Intangible assets
Goodwill:
All business combinations are accounted for using the purchase method. Goodwill
has been recognised in acquisitions of subsidiaries, and represents the
difference between the cost of the acquisition and the fair value of the net
identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring before 1
January 2004 have not been reconsidered in preparing the Group's opening IFRS
balance sheet at 1 January 2004 due to the exemption available in IFRS 1 (First
time adoption). In respect of acquisitions prior to 1 January 2004, goodwill is
included at the transition date on the basis of its deemed cost, which
represents the amount recorded under UK GAAP, which was tested for impairment at
the transition date. On transition, amortisation of goodwill has ceased as
required by IAS 38.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash generating units (CGU's) according to business segment and is
reviewed annually for impairment.
The Goodwill held on the balance sheet at 31 December 2011 is allocated solely
to the UK car insurance segment.
Impairment of goodwill:
The annual impairment review involves comparing the carrying amount to the
estimated recoverable amount (by allocating the goodwill to CGU's) and
recognising an impairment loss if the recoverable amount is lower. Impairment
losses are recognised through the income statement and are not subsequently
reversed.
The recoverable amount is the greater of the fair value of the asset less costs
to sell and the value in use of the CGU.
The value in use calculations use cash flow projections based on financial
budgets approved by management covering a three year period. Cash flows beyond
this period are considered, but not included in the calculation. The discount
rate applied to the cashflow projections in the value in use calculations is
11.3 % (2010: 11.5%), based on the Group's weighted average cost of capital,
which is in line with the market (source: Bloomberg).
The key assumptions used in the value in use calculations are those regarding
growth rates and expected changes in pricing and expenses incurred during the
period. Management estimates growth rates and changes in pricing based on past
practices and expected future changes in the market.
The headroom above the goodwill carrying value is very significant, and there is
no foreseeable event that would eliminate this margin.
Deferred acquisition costs:
Acquisition costs comprise all direct and indirect costs arising from the
conclusion of insurance contracts. Deferred acquisition costs represent the
proportion of acquisition costs incurred that corresponds to the unearned
premiums provision at the balance sheet date. This balance is held as an
intangible asset. It is amortised over the term of the contract as premium is
earned.
Software:
Purchased software is recognised as an intangible asset and amortised over its
expected useful life (generally between two and four years). The carrying value
is reviewed every six months for evidence of impairment, with the value being
written down if any impairment exists. Impairment may be reversed if conditions
subsequently improve.
e) Property and equipment, and depreciation
All property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method to
write off the cost less residual values of the assets over their useful economic
lives. These useful economic lives are as follows:
Motor vehicles - 4 years
Fixtures, fittings and equipment - 4 years
Computer equipment - 2 to 4 years
Improvements to short leasehold properties - 4 years
Impairment of property, plant and equipment
In the case of property plant and equipment, carrying values are reviewed at
each balance sheet date to determine whether there are any indications of
impairment. If any such indications exist, the asset's recoverable amount is
estimated and compared to the carrying value. The carrying value is the higher
of the fair value of the asset, less costs to sell and the asset's value in use.
Impairment losses are recognised through the income statement.
f) Leased assets
The rental costs relating to assets held under operating leases are charged to
the income statement on a straight-line basis over the life of the lease.
Leases under the terms of which the Group assumes substantially all of the risks
and rewards of ownership are classed as finance leases. Assets acquired under
finance leases are included in property, plant and equipment at fair value on
acquisition and are depreciated in the same manner as equivalent owned assets.
Finance lease and hire purchase obligations are included in creditors, and the
finance costs are spread over the periods of the agreements based on the net
amount outstanding.
g) Financial assets - investments and receivables
Initial recognition
Financial assets within the scope of IAS 39 are classified as financial assets
at fair value through profit or loss, loans and receivables or held to maturity
investments. The Group has not held any derivative instruments in the years
ending 31 December 2011 and 31 December 2010.
At initial recognition assets are recognised at fair value and classified
according to the purpose for which they were acquired.
The Group's investments in money market liquidity funds are designated as
financial assets at fair value through profit or loss (FVTPL) at inception.
This designation is permitted under IAS 39, as the investments in money market
funds are managed as a group of assets and internal performance evaluation of
this group is conducted on a fair value basis.
The Group's deposits with credit institutions are classified as held to maturity
investments, which is consistent with the intention for which they were
purchased.
Subsequent measurement
Financial assets at FVTPL are stated at fair value, with any resultant gain or
loss recognised through the income statement.
Deposits with fixed maturities, classified as held to maturity investments are
measured at amortised cost using the effective interest method. Movements in the
amortised cost are recognised through the income statement, as are any
impairment losses.
Loans and receivables are stated at their amortised cost less impairment using
the effective interest method. Impairment losses are recognised through the
income statement.
Impairment of financial assets
The Group assesses at each balance sheet date whether any financial assets or
groups of financial assets held at amortised cost, are impaired. Financial
assets are impaired where there is evidence that one or more events occurring
after the initial recognition of the asset, may lead to a reduction in the
estimated future cashflows arising from the asset.
Objective evidence of impairment may include default on cashflows due from the
asset and reported financial difficulty of the issuer or counterparty.
Derecognition of financial assets
A financial asset is derecognised when the rights to receive cashflows from that
asset have expired or when the Group transfers the asset and all the attaching
substantial risks and rewards relating to the asset, to a third party.
h) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, and other short-term deposits with original maturities of three months or
less. All cash and cash equivalents are measured at amortised cost.
i) Share capital
Shares are classified as equity when there is no obligation to transfer cash or
other assets.
j) Employee benefits
Pensions:
The Group contributes to a number of defined contribution personal pension plans
for its employees. The contributions payable to these schemes are charged in
the accounting period to which they relate.
Employee share schemes:
The Group operates a number of equity settled compensation schemes for its
employees. For schemes commencing 1 January 2004 and after, the fair value of
the employee services received in exchange for the grant of free shares under
the schemes is recognised as an expense, with a corresponding increase in
equity.
The total charge expensed over the vesting period is determined by reference to
the fair value of the free shares granted as determined at the grant date
(excluding the impact of non-market vesting conditions). Non-market conditions
such as profitability targets as well as staff attrition rates are included in
assumptions over the number of free shares to vest under the applicable scheme.
At each balance sheet date, the Group revises its assumptions on the number of
shares to be granted with the impact of any change in the assumptions recognised
through income.
Refer to note 24 for further details on share schemes.
k) Taxation
Income tax on the profit or loss for the periods presented comprises current and
deferred tax.
Current tax:
Current tax is the expected tax payable on the taxable income for the period,
using tax rates that have been enacted or substantively enacted by the balance
sheet date, and includes any adjustment to tax payable in respect of previous
periods.
Current tax related to items recognised in other comprehensive income is also
recognised in other comprehensive income and not in the income statement.
Deferred tax:
Deferred tax is provided in full using the balance sheet liability method,
providing for temporary differences arising between the carrying amount of
assets and liabilities for accounting purposes, and the amounts used for
taxation purposes. It is calculated at the tax rates that have been enacted or
substantially enacted by the balance sheet date, or that are expected to apply
in the period when the liability is settled or the asset is realised.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
The principal temporary differences arise from depreciation of property and
equipment and share scheme charges. The resulting deferred tax is charged or
credited in the income statement, except in relation to share scheme charges
where the amount of tax benefit credited to the income statement is limited to
an equivalent credit calculated on the accounting charge. Any excess is
recognised directly in equity.
l) Government grants
Government grants are recognised in the financial statements in the period where
it becomes reasonably certain that the conditions attaching to the grant will be
met, and that the grant will be received.
Grants relating to assets are deducted from the carrying amount of the asset.
The grant is therefore recognised as income over the life of the depreciable
asset by way of a reduced depreciation charge.
Grants relating to income are shown as a deduction in the reported expense.
m) Non- current assets held for sale
Non-current assets that are expected to be recovered primarily through sale
rather than continuing use are classified as held for sale. Immediately before
classification as held for sale, the assets are remeasured in accordance with
the Group's accounting policies, and thereafter are measured at the lower of
their carrying value and fair value less costs to sell. Impairment losses on
initial classification as held for sale and subsequent gains or losses on
remeasurement are recognised in the income statement. Gains are not recognised
in excess of any cumulative impairment loss.
4. Operating segments
The Group has four reportable segments, as described below. These segments
represent the principal split of business that is regularly reported to the
Group's Board of Directors, which is considered to be the Group's chief
operating decision maker in line with IFRS 8, Operating Segments.
UK Car Insurance
The segment consists of the underwriting of car insurance and the generation of
ancillary income from underwriting car insurance in the UK. The Directors
consider the results of these activities to be reportable as one segment as the
activities carried out in generating the income are not independent of each
other and are performed as one business. This mirrors the approach taken in
management reporting.
International Car Insurance
The segment consists of the underwriting of car insurance and the generation of
ancillary income from underwriting car insurance outside of the UK. It
specifically covers the Group operations Admiral Seguros in Spain, ConTe in
Italy, L'olivier Assurances in France and Elephant Auto in the USA. None of
these operations are reportable on an individual basis, based on the threshold
requirements in IFRS 8.
Price Comparison
The segment relates to the Group's price comparison websites Confused in the UK,
Rastreator in Spain, LeLynx in France and Chiarezza in Italy. Each of the Price
Comparison businesses are operating in individual geographical segments but are
grouped into one reporting segment as LeLynx, Chiarezza and Rastreator do not
individually meet the threshold requirements in IFRS 8.
Other
The 'other' segment is designed to be comprised of all other operating segments
that do not meet the threshold requirements for individual reporting. Currently
there is only one such segment, the Gladiator commercial van insurance broking
operation, and so it is the results and balances of this operation comprises the
'other' segment.
Taxes are not allocated across the segments and, as with the corporate
activities, are included in the reconciliation to the Consolidated Income
Statement and Consolidated Statement of Financial Position.
Segment income, results and other information
An analysis of the Group's revenue and results for the year ended 31 December
2011, by reportable segment are shown below. The accounting policies of the
reportable segments are consistent with those presented in note 3 for the Group.
31 December 2011
UK Car International Price Eliminations Segment
Insurance Car Insurance Comparison Other total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover* 1,966.0 122.2 90.4 11.7 - 2,190.3
--------------------------------------------------------------
Net insurance
premium revenue 418.6 27.2 - - - 445.8
Other revenue
and profit
commission 299.0 9.7 90.4 11.7 - 410.8
Investment and
interest income 10.6 0.2 - - - 10.8
--------------------------------------------------------------
Net revenue 728.2 37.1 90.4 11.7 - 867.4
Net insurance
claims (335.5) (28.3) - - - (363.8)
Expenses (79.1) (18.3) (79.9) (8.9) - (186.2)
--------------------------------------------------------------
Segment profit /
(loss) before
tax 313.6 (9.5) 10.5 2.8 - 317.4
--------------------------------------------------------------
Other central revenue and expenses, including share scheme
charges (21.2)
Interest income 2.9
--------
Consolidated profit before
tax 299.1
Taxation expense (77.8)
--------
Consolidated profit after
tax 221.3
--------
Other segment
items:
Capital
expenditure 12.4 2.9 1.1 0.4 - 16.8
Depreciation and
Amortisation 37.8 11.8 1.2 0.3 - 51.2
--------------------------------------------------------------
*Turnover is a non-GAAP measure and consists of total premiums written
(including co-insurers share) and other revenue.
Revenue and results for the corresponding reportable segments for the year ended
31 December 2010 are shown below.
31 December 2010
UK Car International Price Eliminations Segment
Insurance Car Insurance Comparison Other total
GBPm GBPm GBPm GBPm GBPm GBPm
Turnover* 1,419.7 77.6 75.7 11.8 - 1,584.8
--------------------------------------------------------------
Net insurance
premium revenue 269.4 18.7 - - - 288.1
Other revenue
and profit
commission 249.0 6.7 75.7 11.8 - 343.2
Investment and
interest income 8.3 0.1 - - - 8.4
--------------------------------------------------------------
Net revenue 526.7 25.5 75.7 11.8 - 639.7
Net insurance
claims (192.6) (15.9) - - - (208.5)
Expenses (58.3) (17.6) (63.6) (9.1) - (148.6)
--------------------------------------------------------------
Segment profit /
(loss) before
tax 275.8 (8.0) 12.1 2.7 - 282.6
--------------------------------------------------------------
Other central revenue and expenses, including share scheme
charges (18.2)
Interest income 1.1
--------
Consolidated profit before
tax 265.5
Taxation expense (71.9)
--------
Consolidated profit after
tax 193.6
--------
Other segment
items:
Capital
expenditure 6.8 2.6 1.7 0.1 - 11.2
Depreciation and
Amortisation 20.7 9.0 0.7 0.3 - 30.7
--------------------------------------------------------------
*Turnover is a non-GAAP measure and consists of total premiums written
(including co-insurers share) and other revenue.
Segment revenues
The UK and International Car Insurance reportable segments derive all insurance
premium income from external policyholders. Revenue within these segments is not
derived from an individual policyholder that represents 10% or more of the
Group's total revenue.
The total of Price Comparison revenues from transactions with other reportable
segments is GBP16.1m (2010: GBP15.0m). These amounts have not been eliminated on
consolidation in order to avoid distorting expense and combined ratios which are
key performance indicators for insurance business. There are no other
transactions between reportable segments.
Revenues from external customers for products and services is consistent with
the split of reportable segment revenues as shown above.
Information about geographical locations
All material revenues from external customers, and net assets attributed to a
foreign country are shown within the International Car Insurance reportable
segment shown above. The revenue and results of the three International Price
Comparison businesses, Rastreator, LeLynx and Chiarezza are not yet material
enough to be presented as a separate segment.
Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2011 are as
follows.
31 December 2011
International
UK Car car Price Segment
Insurance insurance Comparison Other Eliminations total
GBPm GBPm GBPm GBPm GBPm GBPm
Property and
equipment 12.1 3.1 1.8 0.6 - 17.6
Intangible
assets 78.4 8.5 0.5 0.1 - 87.5
Reinsurance
assets 570.3 69.5 - - - 639.8
Trade and other
receivables 118.7 (5.5) (0.2) 9.0 (69.9) 52.1
Financial assets 1,464.8 83.2 - - - 1,548.0
Cash and cash
equivalents 117.8 38.9 8.8 4.4 - 169.9
--------------------------------------------------------------
Reportable
segment assets 2,362.1 197.7 10.8 14.1 (69.9) 2,514.8
--------------------------------------------------------------
Insurance
contract
liabilities 1,215.4 118.3 - - - 1,333.7
Trade and other
payables 816.1 28.3 6.6 5.6 - 856.6
--------------------------------------------------------------
Reportable
segment
liabilities 2,031.5 146.5 6.6 5.6 - 2,190.2
--------------------------------------------------------------
Reportable
segment net
assets 330.6 51.2 4.2 8.5 (69.9) 324.6
--------------------------------------------------------------
Unallocated
assets and
liabilities 69.8
--------
Consolidated net
assets 394.4
--------
Unallocated assets and liabilities consist of other central assets and
liabilities, plus deferred and current corporation tax balances. These assets
and liabilities are not regularly reviewed by the Board of Directors in the
reportable segment format.
There is an asymmetrical allocation of assets and income to the reportable
segments, in that the interest earned on cash and cash equivalent assets
deployed in the UK Car Insurance, Price Comparison and International Car
Insurance segments is not allocated in arriving at segment profits. This is
consistent with regular management reporting.
Eliminations represent inter-segment funding and balances included in trade and
other receivables.
The segment assets and liabilities at 31 December 2010 are as follows.
31 December 2010
International
UK Car car Price Segment
Insurance insurance Comparison Other Eliminations total
GBPm GBPm GBPm GBPm GBPm GBPm
Property and
equipment 8.6 2.3 2.1 0.6 - 13.6
Intangible
assets 76.0 6.8 0.1 - - 82.9
Reinsurance
assets 324.7 32.3 - - - 357.0
Trade and other
receivables 150.5 (4.7) (0.9) 8.5 (105.5) 47.9
Financial assets 947.3 47.4 - - - 994.7
Cash and cash
equivalents 90.6 40.3 11.2 3.1 - 145.2
Assets held for
sale - 1.5 - - - 1.5
--------------------------------------------------------------
Reportable
segment assets 1,597.7 125.9 12.5 12.2 (105.5) 1,642.8
--------------------------------------------------------------
Insurance
contract
liabilities 752.1 54.5 - - - 806.6
Trade and other
payables 531.5 18.2 6.6 4.7 - 561.0
--------------------------------------------------------------
Reportable
segment
liabilities 1,283.6 72.7 6.6 4.7 - 1,367.6
--------------------------------------------------------------
Reportable
segment net
assets 314.1 53.2 5.9 7.5 (105.5) 275.2
--------------------------------------------------------------
Unallocated
assets and
liabilities 75.5
--------
Consolidated net
assets 350.7
--------
5. Net insurance premium revenue
31 31
December December
2011 2010
GBPm GBPm
Total motor insurance premiums before co-insurance 1,841.3 1,308.6
------------------
Group gross premiums written after co-insurance 1,128.4 738.5
Outwards reinsurance premiums (622.0) (380.0)
------------------
Net insurance premiums written 506.4 358.5
Change in gross unearned premium provision (168.7) (163.9)
Change in reinsurers' share of unearned premium provision
108.1 93.5
------------------
Net insurance premium revenue 445.8 288.1
------------------
The Group's share of the car insurance business was underwritten by Admiral
Insurance (Gibraltar) Limited and Admiral Insurance Company Limited. All
contracts are short-term in duration, lasting for 10 or 12 months.
6. Other revenue
31 31
December December
2011 2010
GBPm GBPm
Ancillary revenue 223.3 174.6
Price comparison revenue 90.4 75.7
Other revenue 35.3 25.9
----------------------
Total other revenue 349.0 276.2
----------------------
Refer to the Business Review for further detail on the sources of revenue.
7. Profit commission
31 31
December December
2011 2010
GBPm GBPm
Total profit commission 61.8 67.0
----------------------
8. Investment and interest income
31 31
December December
2011 2010
GBPm GBPm
Net investment return 10.8 8.4
Interest receivable 2.9 1.1
----------------------
Total investment and interest income 13.7 9.5
----------------------
Interest received during the year was GBP2.9m (2010: GBP1.1m).
9. Operating expenses and share scheme charges
31 December 2011 31 December 2010
Insurance Other Total Insurance Other Total
contracts contracts
GBPm GBPm GBPm GBPm GBPm GBPm
Acquisition of insurance contracts
36.2 - 36.2 20.9 - 20.9
Administration and other marketing
costs 26.7 125.9 152.6 28.0 102.9 130.9
----------------------- ----------------------
Expenses 62.9 125.9 188.8 48.9 102.9 151.8
Share scheme charges
- 18.6 18.6 - 15.0 15.0
----------------------- ----------------------
Total expenses and share scheme
charges 62.9 144.5 207.4 48.9 117.9 166.8
----------------------- ----------------------
Analysis of other administration and other marketing costs:
31 31
December December
2011 2010
GBPm GBPm
Ancillary sales expenses 33.8 26.9
Price comparison operating expenses 79.9 63.6
Other expenses 12.2 12.4
----------------------
Total 125.9 102.9
----------------------
The GBP26.7m (2010: GBP28.0m) administration and marketing costs allocated to
insurance contracts is principally made up of salary costs.
The gross amount of expenses, before recoveries from co-insurers and reinsurers
is GBP369.9m (2010: GBP333.2m). This amount can be reconciled to the total expenses
and share scheme charges above of GBP207.4m (2010: GBP166.8m) as follows:
31 31
December December
2011 2010
GBPm GBPm
Gross expenses 369.9 333.2
Co-insurer share of expenses (77.9) (99.5)
----------------------
Expenses, net of co-insurer share 292.0 233.7
Adjustment for deferral of acquisition costs (11.0) (7.9)
----------------------
Expenses, net of co-insurer share (earned basis) 281.0 225.8
Reinsurer share of expenses (earned basis) (73.6) (59.0)
----------------------
Total expenses and share scheme charges 207.4 166.8
----------------------
Reconciliation of expenses related to insurance contracts to reported Group
expense ratio:
31 31
December December
2011 2010
GBPm GBPm
Insurance contract expenses from above 62.9 48.9
Add: claims handling expenses 11.9 8.5
----------------------
Adjusted expenses 74.8 57.4
Net insurance premium revenue 445.8 288.1
Reported expense ratio 16.8% 19.9%
----------------------
10. Staff costs and other expenses
Included in gross expenses, before co-insurance arrangements, are the following:
31 31
December December
2011 2010
GBPm GBPm
Salaries 114.5 92.5
Social security charges 10.3 12.7
Pension costs 1.3 1.3
Share scheme charges (see note 24) 23.6 18.5
----------------------
Total staff expenses 149.7 125.0
----------------------
Depreciation charge:
- Owned assets 5.4 4.1
- Leased assets 0.7 0.5
Amortisation charge:
- Software 3.3 2.7
- Deferred acquisition costs 41.8 23.4
Operating lease rentals:
- Buildings 7.9 6.4
Auditor's remuneration (including VAT):
- Fees payable for the audit of the Company's annual accounts
- -
- Fees payable for the audit of the Company's subsidiary accounts
0.2 0.2
- Fees payable for other services 0.3 0.2
Net foreign exchange losses 0.8 0.8
----------
Analysis of fees paid to the auditor for other services:
Tax compliance services 0.1 -
Tax advisory services 0.2 0.1
Other services - 0.1
----------
Total as above 0.3 0.2
----------
The amortisation of software and deferred acquisition cost assets is charged to
expenses in the income statement.
11. Staff numbers (including Directors)
Average for the year
2011 2010
Number Number
Direct customer contact staff 4,264 3,280
Support staff 1,060 972
-----------------------
Total 5,324 4,252
-----------------------
12. Taxation
31 31
December December
2011 2010
GBPm GBPm
Current tax
Corporation tax on profits for the year 80.3 87.4
Over provision relating to prior periods (3.2) (0.7)
------------------
Current tax charge 77.1 86.7
Deferred tax
Current period deferred taxation movement (0.8) (15.3)
Under provision relating to prior periods - deferred tax 1.5 0.5
------------------
Total tax charge per income statement 77.8 71.9
------------------
Factors affecting the total tax charge are:
31 31
December December
2011 2010
GBPm GBPm
Profit before tax 299.1 265.5
------------------
Corporation tax thereon at effective UK corporation tax rate
of 26.5% (2010: 28%) 79.3 74.3
Expenses and provisions not deductible for tax purposes 0.1 (0.1)
Difference in tax rates 0.5 0.2
Adjustments relating to prior periods (1.7) (0.1)
Other differences (0.4) (2.4)
------------------
Total tax charge for the period as above 77.8 71.9
------------------
13. Dividends
Dividends were declared and paid as follows.
31 31
December December
2011 2010
GBPm GBPm
March 2010 (29.8p per share, paid April 2010) - 78.3
September 2010 (32.6p per share, paid October 2010) - 86.4
March 2011 (35.5p per share, paid May 2011) 94.5 -
August 2011 (39.1p per share, paid October 2011) 104.3 -
----------------------
Total dividends 198.8 164.7
----------------------
The dividends declared in March represent the final dividends paid in respect of
the 2009 and 2010 financial years. Dividends declared in September 2010 and
August 2011 are interim distributions in respect of 2010 and 2011.
A final dividend of 36.5p per share ( GBP99m) has been proposed in respect of the
2011 financial year. Refer to the Chairman's statement and Business Review for
further detail.
14. Earnings per share
31 31
December December
2011 2010
Profit for the financial year after taxation ( GBPm) 221.2 193.6
Weighted average number of shares - basic 269,903,301 267,827,176
Unadjusted earnings per share - basic 81.9p 72.3p
Weighted average number of shares - diluted 270,782,526 268,221,829
Unadjusted earnings per share - diluted 81.7p 72.2p
The difference between the basic and diluted number of shares at the end of
2011 (being 879,225; 2010: 394,653) relates to awards committed, but not yet
issued under the Group's share schemes. Refer to note 24 for further detail.
15. Property and equipment
Improvements
to short
leasehold Computer Office Furniture and
buildings equipment equipment fittings Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2010 5.0 20.1 7.7 3.2 36.0
Additions 0.7 5.4 1.2 0.4 7.7
Disposals - (0.2) - - (0.2)
Transferred to 'assets
classified as held for
sale' (0.5) (1.2) (0.4) (0.2) (2.3)
-----------------------------------------------------
At 31 December 2010 5.2 24.1 8.5 3.4 41.2
-----------------------------------------------------
Depreciation
At 1 January 2010 2.8 13.7 5.2 2.2 23.9
Charge for the year 0.9 2.4 0.9 0.4 4.6
Disposals - (0.1) - - (0.1)
Transferred to 'assets
classified as held for
sale' (0.2) (0.5) (0.1) - (0.8)
-----------------------------------------------------
At 31 December 2010 3.5 15.5 6.0 2.6 27.6
-----------------------------------------------------
Net book amount
At 1 January 2010 2.2 6.4 2.5 1.0 12.1
-----------------------------------------------------
Net book amount
At 31 December 2010 1.7 8.6 2.5 0.8 13.6
-----------------------------------------------------
Cost
At 1 January 2011 5.2 24.1 8.5 3.4 41.2
Additions 1.5 4.5 2.9 1.5 10.4
Disposals - (0.3) - - (0.3)
-----------------------------------------------------
At 31 December 2011 6.7 28.3 11.4 4.9 51.3
-----------------------------------------------------
Depreciation
At 1 January 2011 3.5 15.5 6.0 2.6 27.6
Charge for the year 0.9 3.5 1.2 0.5 6.1
Disposals - - - - -
-----------------------------------------------------
At 31 December 2011 4.4 19.0 7.2 3.1 33.7
-----------------------------------------------------
Net book amount
At 31 December 2011 2.3 9.3 4.2 1.8 17.6
-----------------------------------------------------
The net book value of assets held under finance leases is as follows:
31 31
December December
2011 2010
GBPm GBPm
Computer equipment 2.8 1.2
----------------------
16. Intangible assets
Goodwill Deferred Software Total
acquisition
costs
GBPm GBPm GBPm GBPm
At 1 January 2010 62.3 9.4 5.3 77.0
Additions - 28.9 3.4 32.3
Amortisation charge - (23.4) (2.7) (26.1)
Disposals - - (0.3) (0.3)
---------------------------------------------
At 31 December 2010 62.3 14.9 5.7 82.9
Additions - 43.3 6.4 49.7
Amortisation charge - (41.8) (3.3) (45.1)
Disposals - - - -
---------------------------------------------
At 31 December 2011 62.3 16.4 8.8 87.5
---------------------------------------------
Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly
Admiral Insurance Services Limited) in November 1999. It is allocated solely to
the UK Car Insurance segment. As described in the accounting policies, the
amortisation of this asset ceased on transition to IFRS on 1 January 2004. All
annual impairment reviews since the transition date have indicated that the
estimated recoverable value of the asset is greater than the carrying amount and
therefore no impairment losses have been recognised. Refer to the accounting
policy for goodwill for further information.
17. Financial assets and liabilities
The Group's financial instruments can be analysed as follows:
31 31
December December
2011 2010
Financial assets: GBPm GBPm
Investments held at fair value 862.1 363.6
Held to maturity deposits with credit institutions 297.0 299.6
Receivables - amounts owed by policyholders 423.9 341.5
------------------
Total financial assets per consolidated balance sheet 1,583.0 1,004.7
Trade and other receivables 52.1 47.9
Cash and cash equivalents 224.6 246.7
------------------
1,859.7 1,299.3
------------------
Financial liabilities:
Trade and other payables 856.6 561.0
------------------
All investments held at fair value are invested in AAA-rated money market
liquidity funds. These funds target a short term cash return with capital
security and low volatility and continue to achieve these goals.
The approximate fair value of held to maturity deposits is GBP280.8m (2010:
GBP285.2m) based on a calculation to discount expected cashflows arising at the
Group's weighted average cost of capital (WACC). The amortised cost carrying
amount of receivables is a reasonable approximation of fair value.
The maturity profile of financial assets and liabilities at 31 December 2011 is
as follows:
On < 1 Year Between 1 > 2 Years
demand and 2
years
Financial assets: GBPm GBPm GBPm GBPm
Investments held at fair value 862.1 - - -
Held to maturity deposits with credit - 175.3 79.2 42.5
institutions
Receivables - amounts owed by policyholders - 423.9 - -
-------------------------------------
Total financial assets 862.1 599.2 79.2 42.5
Trade and other receivables - 52.1 - -
Cash and cash equivalents 224.6 - - -
-------------------------------------
1,086.7 651.3 79.2 42.5
-------------------------------------
Financial liabilities:
Trade and other payables - 856.6 - -
-------------------------------------
The maturity profile of financial assets and liabilities at 31 December 2010 was
as follows:
On < 1 Year Between 1 > 2 Years
demand and 2
years
Financial assets: GBPm GBPm GBPm GBPm
Investments held at fair value 363.6 - - -
Held to maturity deposits with credit - 197.3 60.8 41.5
institutions
Receivables - amounts owed by policyholders - 341.5 - -
------------------------------------
Total financial assets 363.6 538.8 60.8 41.5
Trade and other receivables - 47.9 - -
Cash and cash equivalents 246.7 - - -
------------------------------------
610.3 586.7 60.8 41.5
------------------------------------
Financial liabilities:
Trade and other payables - 561.0 - -
------------------------------------
Objectives, policies and procedures for managing financial assets and
liabilities
The Group's activities expose it primarily to the significant financial risks of
credit risk, interest rate risk, liquidity risk and foreign exchange risk. The
Board of Directors has delegated the task of supervising risk management and
internal control to the Risk Committee. There is also an Investment Committee
that makes recommendations to the Board on the Group's investment strategy.
There are several key elements to the risk management environment throughout the
Group. These are detailed in full in the Corporate Governance statement.
Specific considerations for the risks arising from financial assets and
liabilities are detailed below.
Credit risk
The Group defines credit risk as the risk of loss if another party fails to
perform its obligations or fails to perform them in a timely fashion. The key
areas of exposure to credit risk for the Group result through its reinsurance
programme, investments, bank deposits and policyholder receivables.
Economic and financial market conditions have led the Directors to consider
counterparty exposure more frequently and in significant detail. The Directors
consider that the policies and procedures in place to manage credit exposure
continue to be appropriate for the Group's risk appetite, and no material credit
losses have been experienced by the Group.
There are no specific concentrations of credit risk with respect to investment
counterparties due to the structure of the liquidity funds which invest in a
wide range of very short duration, high quality securities. Cash balances and
deposits are placed only with highly rated credit institutions.
To mitigate the risk arising from exposure to reinsurers (in the form of
reinsurance recoveries and profit commissions), the Group only conducts business
with companies of specified financial strength ratings. In addition, most
reinsurance contracts are operated on a funds withheld basis, which
substantially reduces credit risk.
The other principal form of credit risk is in respect of amounts due from
policyholders, largely due to the potential for default by instalment payers.
The impact of this is mitigated by the large customer base and low average
level of balance recoverable. There is also mitigation by the operation of
numerous high and low level controls in this area, including payment on policy
acceptance as opposed to inception and automated cancellation procedures for
policies in default.
The Group's maximum exposure to credit risk at 31 December 2011 is GBP1,807.6m
(2010: GBP1,251.4m) being the carrying value of financial assets and cash. The
group does not use credit derivatives or similar instruments to mitigate
exposure. The amount of bad debt expense relating to policyholder debt charged
to the income statement in 2010 and 2011 is insignificant.
There were no significant financial assets that were past due at the close of
either 2011 or 2010.
The Group's credit risk exposure to assets with external ratings is as follows:
31 31
December December
Rating 2011 2010
GBPm GBPm
Financial institutions - Money market funds AAA 862.1 363.6
Financial institutions - Credit institutions AA 178.2 252.6
Financial institutions - Credit institutions A 98.0 47.0
Financial institutions - Credit institutions BBB 20.8 -
Reinsurers A 88.3 104.4
------------------
Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable
movements in interest rates could adversely impact on the capital values of
financial assets and liabilities. This relates primarily to investments held at
fair value.
As noted above, the Group invests in money market liquidity funds, which in turn
invest in a mixture of very short dated fixed and variable rate securities, such
as cash deposits, certificates of deposits, floating rate notes and other
commercial paper.
The funds are not permitted to have an average maturity greater than 60 days and
hence are not subject to large movements in yield and value resulting from
changes in market interest rates (as longer duration fixed income portfolios can
experience). Returns are likely to closely track the LIBID benchmark and hence
while the Group's investment return will vary according to market interest
rates, the capital value of these investment funds will not be impacted by rate
movements. The interest rate risk arising is therefore considered to be
minimal.
The Group also holds a number of fixed rate, longer-term deposits with UK credit
institutions. These are classified as held to maturity and valued at amortised
cost. Therefore neither the capital value of the deposits, or the interest
return will be impacted by fluctuations in interest rates.
No sensitivity analysis to interest rates has been presented on the grounds of
materiality.
Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient,
available, financial resources to enable it to meet its obligations as they fall
due, or can only secure them at excessive cost.
The Group is strongly cash generative due to the large proportion of revenue
arising from non-underwriting activity. Further, as noted above, a significant
portion of insurance funds are invested in money market liquidity funds with
same day liquidity, meaning that a large proportion of the Group cash and
investments are immediately available.
A breakdown of the Group's financial liabilities - trade and other payables is
shown in note 21. In terms of the maturity profile of these liabilities, all
amounts will mature within 3 - 6 months of the balance sheet date except for a
minority of finance lease liabilities which will expire after 12 months. (Refer
to note 22 and the maturity profile at the start of this note for further
detail.)
In practice, the Group's Directors expect actual cashflows to be consistent with
this maturity profile except for amounts owed to co-insurers and reinsurers. Of
the total amounts owed to co- insurers and reinsurers of GBP579.4m (2010:
GBP327.4m), GBP432.9m (2010: GBP213.8m) is held under funds withheld arrangements and
therefore not expected to be settled within 12 months.
A maturity analysis for insurance contract liabilities is included in note 18.
The maturity profile for financial assets is included at the start of this note.
The Group's Directors believe that the cashflows arising from these assets will
be consistent with this profile.
Liquidity risk is not, therefore considered to be significant.
Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange
rates that could adversely impact the valuation of overseas assets.
The Group is exposed to foreign exchange risk through its expanding operations
overseas. Although the relative size of the European and International
operations means that the risks are relatively small, increasingly volatile
foreign exchange rates could result in larger potential gains or losses. Assets
held to fund insurance liabilities are held in the currency of the liabilities,
however surplus assets held as regulatory capital in foreign currencies remain
exposed.
Fair value
For cash at bank and cash deposits, the fair value approximates to the book
value due to their short maturity. For assets held at fair value through profit
and loss, their value equates to level 1 (quoted prices in active markets) of
the fair value hierarchy specified in the amendment to IFRS 7.
Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the Group are
able to continue as going concerns and also to ensure that regulated entities
comfortably meet regulatory requirements. Excess capital above these levels
within subsidiaries is paid up to the Group holding company in the form of
dividends on a regular basis.
The Group's dividend policy is to make distributions after taking into account
capital that is required to be held a) for regulatory purposes; b) to fund
expansion activities; and c) as a further prudent buffer against unforeseen
events. This policy gives the Directors flexibility in managing the Group's
capital.
Capital continues to be held in equity form, with no debt.
18. Reinsurance assets and insurance contract liabilities
A) Objectives, policies and procedures for the management of insurance risk:
The Group is involved in issuing motor insurance contracts that transfer risk
from policyholders to the Group and its underwriting partners.
Insurance risk primarily involves uncertainty over the occurrence, amount or
timing of claims arising on insurance contracts issued.
The key reserving risk is that the frequency and / or value of the claims
arising exceeds expectation and the value of insurance liabilities established.
The Board of Directors is responsible for the management of insurance risk,
although as mentioned in note 17, it has delegated the task of supervising risk
management to the Risk Committee.
The Board implements certain policies in order to mitigate and control the level
of insurance risk accepted by the Group. These include underwriting partnership
arrangements, pricing policies and claims management and administration
policies.
A number of the key elements of these policies and procedures are detailed
below:
i) Co-insurance and reinsurance:
As noted in the Business Review, the Group cedes a significant amount of the
motor insurance business generated to external underwriters. In 2011, 40% of
the UK risk was shared under a co-insurance contract, under which the primary
risk is borne by the co-insurer. A further 32.5% of the UK risk was ceded under
quota share reinsurance contracts.
As well as these proportional arrangements, an excess of loss reinsurance
programme is also purchased to protect the Group against very large individual
claims and catastrophe losses.
ii) Data driven pricing:
The Group's underwriting philosophy is focused on a sophisticated data-driven
approach to pricing and underwriting and on exploiting the competitive
advantages direct insurers enjoy over traditional insurers through:
* Collating and analysing more comprehensive data from customers;
* Tight control over the pricing guidelines in order to target profitable
business sectors; and
* Fast and flexible responsiveness to data analysis and market trends.
The Group is committed to establishing premium rates that appropriately price
the underwriting risk and exposure. Rates are set utilising a larger than
average number of underwriting criteria.
The Directors believe that there is a strong link between the increase in depth
of data that the Group has been able to collate over time and the lower than
average historic reported loss ratios enjoyed by the Group.
iii) Effective claims management:
The Group adopts various claims management strategies designed to ensure that
claims are paid at an appropriate level and to minimise the expenses associated
with claims management. These include:
- An effective, computerised workflow system (which along with the appropriate
level of resources employed helps reduce the scope for error and avoids
significant backlogs);
- Use of an outbound telephone team to contact third parties aiming to minimise
the potential claims costs and to ensure that more third parties utilise the
Group approved repairers;
- Use of sophisticated and innovative methods to check for fraudulent claims.
Concentration of insurance risk:
The Directors do not believe there are significant concentrations of insurance
risk. This is because, although the Group only writes one line of insurance
business, the risks are spread across a large number of people and a wide
regional base.
B) Sensitivity of recognised amounts to changes in assumptions:
The following table sets out the impact on equity at 31 December 2011 that would
result from a 1 per cent worsening in the UK loss ratios used for each
underwriting year for which material amounts remain outstanding.
Underwriting year
2006 2007 2008 2009 2010 2011
Booked loss ratio 74% 69% 72% 77% 77% 82%
Impact of 1% change ( GBPm) 2.1 3.6 2.8 4.1 8.5 6.2
------------------------------------------
The impact is stated net of reinsurance and includes the change in net insurance
claims along with the associated profit commission movements that result from
changes in loss ratios. The figures are stated net of tax at the current rate.
C) Analysis of recognised amounts:
31 31
December December
2011 2010
GBPm GBPm
Gross:
Claims outstanding 781.1 434.2
Unearned premium provision 552.6 372.4
----------------------
Total gross insurance liabilities 1,333.7 806.6
----------------------
Recoverable from reinsurers:
Claims outstanding 334.2 165.2
Unearned premium provision 305.6 191.8
----------------------
Total reinsurers' share of insurance liabilities 639.8 357.0
----------------------
Net:
Claims outstanding 446.9 269.0
Unearned premium provision 247.0 180.6
----------------------
Total insurance liabilities - net 693.9 449.6
----------------------
The maturity profile of gross insurance liabilities at the end of 2011 is as
follows:
< 1 Year 1 - 3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 234.3 266.6 280.2
Unearned premium provision 552.6 - -
-------------------------------------
Total gross insurance liabilities 786.9 266.6 280.2
-------------------------------------
The maturity profile of gross insurance liabilities at the end of 2010 was as
follows:
< 1 Year 1 - 3 years > 3 years
GBPm GBPm GBPm
Claims outstanding 130.3 147.6 156.3
Unearned premium provision 372.4 - -
-------------------------------------
Total gross insurance liabilities 502.7 147.6 156.3
-------------------------------------
D) Analysis of UK claims incurred
The following tables illustrate the development of net UK Car Insurance claims
incurred for the past five financial periods, including the impact of re-
estimation of claims provisions at the end of each financial year. The first
table shows actual net claims incurred, and the second shows the development of
UK loss ratios. Figures are shown net of reinsurance and are on an underwriting
year basis.
Financial year ended 31 December
Analysis of claims incurred (Net 2007 2008 2009 2010 2011 Total
amounts):
GBPm GBPm GBPm GBPm GBPm GBPm
Underwriting year (UK only):
Earlier years (26.3) 31.1 10.6 0.1 8.2
2007 (67.3) (42.0) 11.6 2.7 0.6 (94.4)
2008 - (89.5) (57.7) 10.2 4.6 (132.4)
2009 - - (96.9) (66.9) (4.8) (168.6)
2010 - - - (130.2) (128.5) (258.7)
2011 - - - - (203.7) (203.7)
-----------------------------------------------
UK net claims incurred (excluding
claims handling costs) (93.6) (100.4) (132.4) (184.1) (323.6)
International net claims incurred (2.8) (9.5) (13.6) (15.9) (28.3)
Claims handling costs and other
amounts (3.4) (4.7) (5.7) (8.5) (11.9)
Total net claims incurred (99.8) (114.6) (151.7) (208.5) (363.8)
-----------------------------------------------
Financial year ended 31 December
UK loss ratio development: 2007 2008 2009 2010 2011
GBPm GBPm GBPm GBPm GBPm
Underwriting year (UK only):
2006 87% 79% 75% 75% 74%
2007 89% 80% 72% 70% 69%
2008 88% 79% 74% 72%
2009 84% 75% 77%
2010 78% 77%
2011 82%
-----------------------------------
E) Analysis of net claims provision releases (UK business only):
The following table analyses the impact of movements in prior year claims
provisions, in terms of their net value, and their impact on the reported loss
ratio. This data is presented on an underwriting year basis.
Financial year ended 31 December
2007 2008 2009 2010 2011
GBPm GBPm GBPm GBPm GBPm
Underwriting year:
2000 0.7 0.4 0.4 - (0.4)
2001 1.5 0.5 0.5 - -
2002 1.3 - 0.3 0.3 0.2
2003 3.2 2.3 1.2 - 0.7
2004 7.6 6.4 (1.6) 0.8 1.2
2005 12.6 11.0 1.8 - 3.7
2006 2.6 10.5 7.9 (1.0) 2.9
2007 - 6.9 11.6 2.7 0.6
2008 - - 9.2 10.3 4.5
2009 - - - 10.4 (4.7)
2010 - - - - 1.6
----------------------------------------
Total net release 29.5 38.0 31.3 23.5 10.3
Net UK premium revenue 140.2 161.9 199.1 269.4 418.6
Release as % of net premium revenue 21.0% 23.5% 15.7% 8.7% 2.5%
F) Reconciliation of movement in net claims provision:
31 31
December December
2011 2010
GBPm GBPm
Net claims provision at start of period 269.0 209.4
Net claims incurred 351.9 199.9
Net claims paid (174.0) (140.3)
----------------------
Net claims provision at end of period 446.9 269.0
----------------------
G) Reconciliation of movement in net unearned premium provision:
31 31
December December
2011 2010
GBPm GBPm
Net unearned premium provision at start of period 180.6 110.6
Written in the period 506.4 358.5
Earned in the period (440.0) (288.5)
----------------------
Net unearned premium provision at end of period 247.0 180.6
----------------------
19. Trade and other receivables
31 31
December December
2011 2010
GBPm GBPm
Trade receivables 51.1 47.9
Prepayments and accrued income 1.0 -
----------------------
Total trade and other receivables 52.1 47.9
----------------------
20. Cash and cash equivalents
31 31
December December
2011 2010
GBPm GBPm
Cash at bank and in hand 224.6 246.7
----------------------
Total cash and cash equivalents 224.6 246.7
----------------------
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, and other short-term deposits with original maturities of three months or
less.
21. Trade and other payables
31 31
December December
2011 2010
GBPm GBPm
Trade payables 12.1 13.3
Amounts owed to co-insurers and reinsurers 579.4 327.4
Finance leases due within 12 months 0.9 -
Finance leases due after 12 months - 0.2
Other taxation and social security liabilities 21.9 16.5
Other payables 51.0 59.7
Accruals and deferred income (see below) 191.3 143.9
----------------------
Total trade and other payables 856.6 561.0
----------------------
Of amounts owed to co-insurers and reinsurers, GBP432.9m (2010: GBP213.8m) is held
under funds withheld arrangements.
Analysis of accruals and deferred income:
31 31
December December
2011 2010
GBPm GBPm
Premium receivable in advance of policy inception 110.1 82.3
Accrued expenses 55.8 46.2
Deferred income 25.4 15.4
----------------------
Total accruals and deferred income as above 191.3 143.9
----------------------
22. Obligations under finance leases
Analysis of finance lease liabilities:
At 31 December 2011 At 31 December 2010
Minimum Interest Principal Minimum Interest Principal
lease lease
payments payments
GBPm GBPm GBPm GBPm GBPm GBPm
Less than one year 0.9 - 0.9 - - -
Between one and five
years - - - 0.2 - 0.2
More than five years - - - - - -
--------------------------------------------------------
0.9 - 0.9 0.2 - 0.2
--------------------------------------------------------
The fair value of the Group's lease obligations approximates to their carrying
amount.
23. Deferred income tax asset
31 31
December December
2011 2010
GBPm GBPm
Brought forward at start of period (12.4) 5.7
Movement in period 2.1 (18.1)
----------------------
Carried forward at end of period (10.3) (12.4)
----------------------
The net balance provided at the end of the year is made up as follows:
Analysis of net deferred tax (asset): 31 31
December December
2011 2010
GBPm GBPm
Tax treatment of share scheme charges (3.6) (6.9)
Capital allowances (1.5) (1.3)
Other differences (5.2) (4.2)
----------------------
Deferred tax (asset) at end of period (10.3) (12.4)
----------------------
The UK corporation tax rate reduced from 28% to 26% on 1 April 2011. It is
expected to fall to 25% on 1 April 2012. Deferred tax has therefore been
calculated at 25% where the temporary difference is expected to reverse after
this date.
The amount of deferred tax (expense) / income recognised in the income statement
for each of the temporary differences reported above is:
Amounts credited to income or expense: 31 31
December December
2011 2010
GBPm GBPm
Tax treatment of share scheme charges 1.9 (0.8)
Capital allowances (0.2) (0.3)
Other differences (1.0) 3.6
Remittance of overseas income - 12.3
----------------------
Net deferred tax credited to income (0.7) 14.8
----------------------
The difference between the total movement in the deferred tax balance above and
the amount charged to income relates to deferred tax on share scheme charges
that has been credited directly to equity.
24. Share capital
31 31
December December
2011 2010
GBPm GBPm
Authorised:
500,000,000 ordinary shares of 0.1p 0.5 0.5
----------------------
Issued, called up and fully paid:
270,789,075 ordinary shares of 0.1p 0.3 -
268,571,725 ordinary shares of 0.1p - 0.3
----------------------
0.3 0.3
----------------------
During 2011 2,217,350 (2010: 2,094,434) new ordinary shares of 0.1p were issued
to the trusts administering the Group's share schemes.
717,350 (2010: 594,434) of these were issued to the Admiral Group Share
Incentive Plan Trust for the purposes of this share scheme. These shares are
entitled to receive dividends.
1,500,000 (2010: 1,500,000) were issued to the Admiral Group Employee Benefit
Trust for the purposes of the Discretionary Free Share Scheme. The Trustees
have waived the right to dividend payments, other than to the extent of 0.001p
per share, unless and to the extent otherwise directed by the Company from time
to time.
Staff share schemes:
Analysis of share scheme costs (per income statement):
31 31
December December
2011 2010
GBPm GBPm
SIP charge (note i) 6.0 5.1
DFSS charge (note ii) 12.6 9.9
----------------------
Total share scheme charges 18.6 15.0
----------------------
The share scheme charges reported above are net of the co-insurance share and
therefore differ from the gross charge reported in note 10 (2011: GBP23.6m, 2010:
GBP18.5m) and the gross credit to reserves reported in the consolidated statement
of changes in equity.
The consolidated cashflow statement also shows the gross charge in the
reconciliation between 'profit after tax' and 'cashflows from operating
activities'. The co-insurance share of the charge is included in the 'change in
trade and other payables' line.
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance
of the Group in each half-year period. The current maximum award for each year
is GBP3,000 per employee.
The awards are made with reference to the Group's performance against prior year
profit before tax. Employees must remain in employment for the holding period
(three years from the date of award) otherwise the shares are forfeited.
The fair value of shares awarded is either the share price at the date of award,
or is estimated at the latest share price available when drawing up the
financial statements for awards not yet made (and later adjusted to reflect the
actual share price on the award date). Awards under the SIP are entitled to
receive dividends, and hence no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the Remuneration policy
section of the Remuneration report, individuals receive an award of free shares
at no charge. Staff must remain in employment until the vesting date in order
to receive shares. The maximum number of shares that can vest relating to the
2011 scheme is 1,791,234 (2010 scheme: 1,662,303).
Individual awards are calculated based on the growth in the Company's earnings
per share (EPS) relative to a risk free return (RFR), for which LIBOR has been
selected as a benchmark. This performance is measured over the same three-year
period.
For the 2011 and 2010 schemes, 50% of the shares awarded at the start of the
three year vesting period are subject to these performance conditions.
The range of awards is as follows:
* If the growth in EPS is less than the RFR, no awards vest
* EPS growth is equal to RFR - 10% of maximum award vests
* To achieve the maximum award, EPS growth has to be 36 points higher than RFR
over the three year period
Between 10% and 100% of the maximum awards, a linear relationship exists.
Awards under the DFSS are not eligible for dividends (although a discretionary
bonus is currently paid equivalent to the dividend that would have been paid on
the respective shareholding) and hence the fair value of free shares to be
awarded under this scheme has been revised downwards to take account of these
distributions. The unadjusted fair value is based on the share price at the
date on which awards were made (as stated in the Remuneration report).
Number of free share awards committed at 31 December 2011:
Awards Vesting
outstanding date
(*1)
SIP H208 scheme 477,432 April 2012
SIP H109 scheme 396,200 September 2012
SIP H209 scheme 377,641 March 2013
SIP H110 scheme 352,100 August 2013
SIP H210 scheme 346,590 March 2014
SIP H111 scheme 489,060 September 2014
DFSS 2009 scheme 1(st) award 1,313,865 April 2012
DFSS 2009 scheme 2(nd) award 127,020 August 2012
DFSS 2010 scheme 1(st) award 1,542,453 April 2013
DFSS 2010 scheme 2(nd) award 120,951 August 2013
DFSS 2011 scheme 1(st) award 1,634,032 April 2014
DFSS 2011 scheme 2(nd) award 157,202 September 2014
---------------
Total awards committed 7,334,546
---------------
*1 - being the maximum number of awards expected to be made before accounting
for expected staff attrition.
During the year ended 31 December 2011, awards under the SIP H207 and H108
schemes and the DFSS 2008 scheme vested. The total number of awards vesting for
each scheme is as follows.
Number of free share awards vesting during the year ended 31 December 2011:
Original Awards
Awards vested
SIP H207 scheme 337,770 294,192
SIP H108 scheme 352,732 313,123
DFSS 2008 scheme, 1(st) award 1,306,381 1,165,265
DFSS 2008 scheme, 2(nd) award 87,691 67,968
------------------------
25. Financial commitments
The Group was committed to total minimum obligations under operating leases on
land and buildings as follows:
31 31
December December
Operating leases expiring: 2011 2010
GBPm GBPm
Within one year - 0.2
Within two to five years 12.0 11.1
Over five years 20.3 16.4
----------------------
Total commitments 32.3 27.7
----------------------
Operating lease payments represent rentals payable by the Group for its office
properties.
In addition, the Group had contracted to spend the following on property and
equipment at the end of each period:
31 31
December December
2011 2010
GBPm GBPm
Expenditure contracted - -
----------------------
26. Group subsidiary companies
The Parent Company's principal subsidiaries are as follows:
Subsidiary Country of Class of % Principal
incorporation shares held Ownership activity
EUI Limited England and Wales Ordinary 100 General insurance
intermediary
EUI (France) Limited England and Wales Ordinary 100 General insurance
intermediary
Admiral Insurance England and Wales Ordinary 100 Insurance Company
Company Limited
Admiral Insurance Gibraltar Ordinary 100 Insurance Company
(Gibraltar) Limited
Able Insurance England and Wales Ordinary 100 Intermediary
Services Limited
Inspop.com Limited England and Wales Ordinary 100 Internet
insurance
intermediary
Elephant Insurance United States of Ordinary 100 Insurance Company
Company America
Elephant Insurance United States of Ordinary 100 Insurance
Services, LLC America intermediary
Rastreator.com England and Wales Ordinary 75 Internet
Limited insurance
intermediary
Inspop Technologies India Ordinary 100 Internet
Private Limited technology
supplier
Inspop.com (France) England and Wales Ordinary 100 Internet
Limited insurance
intermediary
Inspop.com (Italy) England and Wales Ordinary 100 Internet
Limited insurance
intermediary
Admiral Syndicate England and Wales Ordinary 100 Dormant
Limited
Admiral Syndicate England and Wales Ordinary 100 Dormant
Management Limited
Admiral Life Limited England and Wales Ordinary 100 Dormant
Bell Direct Limited England and Wales Ordinary 100 Dormant
Confused.com Limited England and Wales Ordinary 100 Dormant
Diamond Motor England and Wales Ordinary 100 Dormant
Insurance Services
Limited
Elephant Insurance England and Wales Ordinary 100 Dormant
Services Limited
For further information on how the Group conducts its business across UK, Europe
and the USA, refer to the Business Review.
27. Related party transactions
a) Mapfre:
In 2011, the Group participated in transactions with Mapfre S.A. during the
normal course of its International Car Insurance and Price Comparison
operations. Mapfre is a related party of Admiral Group due to its 25% minority
interest in Group subsidiary Rastreator.com Limited. Details of the total
transactions with Mapfre and balances outstanding as at 31 December are given in
the table below.
31 31
December December
2011 2010
Total transactions 0.7 0.3
Balances outstanding at 31 December 0.1 -
----------------------
b) Other:
Details relating to the remuneration and shareholdings of key management
personnel are set out in the Remuneration Report (audited section). Key
management personnel are able to obtain discounted motor insurance at the same
rates as all other Group staff, typically at a reduction of 15%.
The Board considers that only the Board of Directors of Admiral Group plc are
key management personnel.
27. Statutory information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2011 or 2010. Statutory
accounts for 2010 have been delivered to the registrar of companies, and those
for 2011 will be delivered in due course. The auditors have reported on those
accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006.
Consolidated financial summary
Basis of preparation:
The figures below are as stated in the Group financial statements preceding this
financial summary and issued previously. Only selected lines from the income
statement and balance sheet have been included.
Income statement
---------------------------------------
2011 2010 2009 2008 2007
GBPm GBPm GBPm GBPm GBPm
Total motor premiums 1,841.3 1,308.6 847.7 716.3 631.3
---------------------------------------
Net insurance premium revenue
445.8 288.1 211.9 169.8 142.2
Other revenue 349.0 276.2 232.6 193.9 176.9
Profit commission 61.8 67.0 54.2 34.7 20.5
Investment and interest income 13.7 9.5 8.8 24.4 24.6
---------------------------------------
Net revenue 870.3 640.8 507.5 422.8 364.2
Net insurance claims (363.8) (208.5) (151.7) (114.6) (99.8)
Total expenses (207.4) (166.8) (140.0) (105.7) (82.0)
---------------------------------------
Operating profit 299.1 265.5 215.8 202.5 182.4
---------------------------------------
Balance sheet
--------------------------------------
2011 2010 2009 2008 2007
GBPm GBPm GBPm GBPm GBPm
Property and equipment
17.6 13.6 12.1 11.0 7.7
Intangible assets 87.5 82.9 77.0 75.7 69.1
Deferred income tax 10.3 12.4 - - 1.6
Reinsurance assets 639.8 357.0 212.9 170.6 131.7
Trade and other receivables
52.1 47.9 32.7 25.5 22.6
Financial assets 1,583.0 1,004.7 630.9 586.9 481.8
Cash and cash equivalents 224.6 246.7 211.8 144.3 155.8
Assets held for sale - 1.5 - - -
--------------------------------------
Total assets 2,614.9 1,766.7 1,177.4 1,014.0 870.3
--------------------------------------
Equity 394.4 350.7 300.8 275.6 237.6
Insurance contracts 1,333.7 806.6 532.9 439.6 363.1
Financial liabilities - - - - -
Deferred income tax - - 5.7 10.3 -
Trade and other payables 856.6 561.0 306.8 270.0 239.6
Current tax liabilities 30.2 48.4 31.2 18.5 30.0
--------------------------------------
Total liabilities 2,614.9 1,766.7 1,177.4 1,014.0 870.3
--------------------------------------
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Admiral Group PLC via Thomson Reuters ONE
[HUG#1591646]
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